denotes premium content | Sep 7 2010 
Feature
posted 23 Feb 2005 in Volume 8 Issue 4
Melrose, UK, USA, Bulgaria & Egypt: Melrose monetises success
MLA: Standard Bank London
Borrower: Melrose Resources and its principal subsidiaries in the UK, USA, Bulgaria and Egypt
Deal size: $65m senior-debt and $10m senior-stretch facility
Signing, closing and disbursement dates: signed 18 November 2004. Closed with first disbursement 23 November 2004
These facilities finance oil and gas production from fields in Egypt, Bulgaria and the US, and provide a uniquely flexible form of secured financing for the multinational oil and gas producers. A tri-nation weighted structure has allowed Melrose to seamlessly monetise success in one geographic sphere for investment in another. Simultaneously, Melrose’s default risk has been reduced by a portfolio effect and its interest costs minimised by utilising the debt capacity of its lower-risk jurisdictions. Meanwhile, the lenders have benefited from a comprehensive model that periodically weights the individual projects and adjusts the margin automatically as the risk matrix changes over the term of a loan.
With a country-of-risk-based weighted average margin between 2.25% and 4%, participating banks receive a 1% fee. The margin calculation is driven by a comprehensive model, which calculates a borrowing base for each project, by which individual project margins are weighted to produce the overall loan margin. This reflects the exposures the lenders are adopting – as the fields deplete over time, or as they are developed, the margin automatically adjusts to the changing risk matrix.
The financing also adopts a number of structural devices to accommodate the International Finance Corporation as a co-lender, a group restructure at closing, a $10m senior-stretch facility provided by the lenders, and a $21m subordinated note provided by the Emerging Europe Infrastructure Fund. The senior debt repayments are determined by the borrowing base with an overriding commitment reduction beginning in year two while the senior stretch will be repaid by a bullet repayment at the end of the term.
According to Terrence White, manager of energy finance for Standard Bank London, “Standard Bank was awarded the mandate because it offered innovations that could connect and focus various stakeholders and resources at a pivotal time in Melrose’s development.”
