Norton Rose’s London office has advised Tizir Limited (a joint venture between Mineral Deposits Ltd and Eramet SA) on the issuance of a US$150 million Nordic Bond and the related intercreditor aspects in relation to future funding.
The financing will be used towards the partial funding of the construction of Tizir Group's mineral sands mining facility and associated infrastructure in Senegal. With Nordic Bond funding being seen as novel in the mining sector, the deal highlights the diverse funding avenues being explored and drawn upon in the current market. This is the second Nordic Bond the Norton Rose Mining Team has been involved on in just over as many months. The team recently acted for Standard Bank in relation to cost overrun facilities being provided alongside a Nordic Bond for the Northland Group’s Kaunisvaara iron ore project in Sweden.
The following provides an overview of the processes involved and the relevant commercial considerations regarding a potential capital raising by way of a Nordic Bond issuance that project stakeholders may wish to consider in relation to their specific financing requirements.
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From 2004 the Norwegian bond market has evolved into its now current form, being a market actively focused on capital raising for both Nordic and international corporations and projects. The Norwegian bond market is now a multi-billion dollar market; being viewed as a mature environment offering established market practice for investors and issuers.
To date, issued capital has primarily been for offshore oil and gas projects but recently more companies in the mining industry and various other sectors have been active in issuing such bonds.
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Norwegian Bond attributes
The generally quick timeframe involved in the bond issuance process is in itself an attractive proposition to many potential issuers. Coupled with this, are the relatively light documentation requirements when compared to, for example, US high yield bonds. The bond agreement is generally a short and straight forward instrument.
The flexibility of the Nordic Bond offering, with the specific requirements of the project and issuer group assessed and taken into account is also of value to issuers. Projects are assessed on a case by case basis, with such aspects as the appetite and ability of the issuer group to provide guarantees and security being open to discussion.
Throughout 2012 to date the Norwegian bond market has been very active, with the market currently still seen as strong. As noted, Norton Rose has very recently been involved on two Nordic Bonds in the mining sector, having just closed the Tizir transaction end of September.
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Commercial and pricing considerations
Several aspects will require consideration with respect to a project company tendering for a Norwegian bond offering and in relation to the pricing connected with such an issuance.
It may initially be preferable for an issuer to provide to the proposed bond arrangers a set of funding and security scenarios in order to gauge appetite and viability and also to obtain a clear view on the different pricing and risk options available for a project.
To this end, the following types of proposals could be considered:
- Capital raising for a specific project, with security offered over the project and all project assets and, in addition and to the extent applicable, collateral offered over other assets and operational facilities within the group.
Project – specific security
- Security for the project offered only with respect to the project and project revenues (with no charges regarding other assets in the group).
- To be viable, the bond arranger and market would need to be comfortable with the servicing potential and transparency of revenues of the project itself for this to be on a stand-alone basis. Geographic and jurisdictional considerations will also be of relevance.
Security backed by PCG
- Security over the project (and possibly group wide assets), in conjunction with a parent company guarantee.
- Guarantor parties are common, as in other bond markets, for Nordic Bonds. That said, transactions are assessed on a case by case basis and guarantees may not always be required.
The extent of security offered can obviously impact on the risk model for bond holders and in turn pricing. Therefore, it may be worthwhile in exploring the above scenarios to obtain a fully informed view as to the potential security/support and pricing options available.
While obviously projects and investments will be assessed on a project-by-project basis, the above highlights the potential for structuring flexibility within the Nordic Bond market.
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Bond issue – process and timeframes
Depending on the complexity of a project, the normal turn-around time for placement of subscriptions is approximately six weeks, being broken into several phases. The following sets out an approximate overview of what is generally an established and relatively quick timeline for the bond issue:
Weeks 1 – 3 (establishing terms)
- Assessment of the project’s business case for viability and marketing purposes.
- Discussions between issuer and bond arrangers to obtain understanding on flexibility requirements for project and the issuer group.
- Bond Agreement terms discussed.
- Term Sheet structuring (including conference calls and possibly face to face meetings).
- Reiterations of Term Sheet on legal input before marketing.
Weeks 4 – 5 (marketing)
- Presentations, including road shows (such as in UK/US/Nordic States).
- Information Memorandum provided.
- Term Sheet finalised.
- Application/Subscription Agreement.
- Credit research/analysis provided on issuer.
Week 6 (subscriptions)
- Bond Agreement – negotiation and finalisation of core terms.
- Subscriptions taken (book closed and allocations given out).
Post subscription: closing process to funding (2 – 4 weeks)
- Closing/settling period – finalisation of documentation, obtaining customary conditions precedent (ie corporates).
- Funds to escrow.
- Conditions precedent completion – security/legal opinions.
- Funds disbursed to issuer.
Depending on the project complexity and associated structuring and security requirements, it may also be possible to noticeably reduce the two-four week timeframe regarding the post-subscription process and to have these items, including satisfaction of conditions precedent closed off within a few days from execution of the bond agreement, resulting in quicker disbursement of bond funds.
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As with many financings, stakeholders will want to consider any future funding requirements that may be required or anticipated subsequent to a bond issuance, as well as any additional lending that may be required from day-one alongside the bond funds. The provision of appropriate intercreditor principles and arrangements should, in such instances, be carefully thought through to provide for the right balance between the bond monies and such other funding streams and associated security requirements. Where applicable it will be crucial to afford appropriate flexibility to the project company (and wider group members) for additional financings.
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We at Norton Rose are happy to discuss further the aspects of a potential Nordic Bond financing and other associated considerations. If you have any questions on this or would like further information on how we could assist please contact Martin McCann or Stephen Palmer.
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