Trafigura Offers COVID-19 Premium

Commodities trader Trafigura Beheer has become the first company to offer a defined Covid premium on an Asian syndicated loan, paying up to an extra 20bp all-in on its latest US$1bn-equivalent financing.

The novel pricing structure is a first for Asia, if not globally, and could set a precedent for other price-sensitive borrowers looking to limit the long-term effects of the pandemic on their funding costs.

Without the Covid premiums, the terms of Trafigura's new deal are little changed from loans it signed in 2018 and 2019.

"Trafigura is compensating lenders for their liquidity as a recognition of the difficult market environment that has resulted in increased costs of borrowing for everyone. However, it is also mindful that the additional compensation does not set a new pricing benchmark for its own borrowings," said one senior loans banker in Hong Kong.

Standard Chartered Bank and Sumitomo Mitsui Banking Corp are the mandated lead arrangers and bookrunners of a US dollar-denominated facility, while Agricultural Bank of China and China Construction Bank are the active bookrunners of a renminbi tranche.

The financing comprises a 365-day US dollar revolving credit facility (tranche A), a one-year renminbi term loan (tranche B) and a three-year US dollar term loan (tranche C).

Tranches A and C pay interest margins of 65bp and 110bp over Libor, respectively, as well as a 10bp Covid-19 margin premium for both portions and fee premiums of 5bp and 30bp.

Excluding the premiums, the margins are similar to that on a US$1.505bn-equivalent loan Trafigura closed last September.

All participating lenders will receive the Covid-19 margin and fee premiums, regardless of their commitment levels.

Liquidity test
Frequent high-grade European borrowers are sensitive about their pricing benchmarks and Trafigura is no different, said the banker, emphasizing that the premium was a one-off compensation for lenders.

"The premium is not based on any pricing grid and does not fall away if Covid-19 has a resolution or if a vaccine is developed," said the banker in Hong Kong.

Syndication will determine what lenders think of the attempt to draw liquidity with the Covid-19 premium. At least one lender is not participating.

"While the Covid-19 premium is an incentive for us to do the business, we are not actively looking at the deal as we are concerned about the market volatility in the energy sector due to the coronavirus pandemic," said a senior banker from a Taiwanese bank.

Another banker in Singapore questioned the logic of tying pricing to Covid-19, given how governments worldwide are struggling to contain the disease.

"It will be very difficult to administer and monitor Covid-19's impact on the loan," he said. "What criteria does one set – the country of origin of the borrower, its operations or the jurisdictions in which the participating lenders operate?"

"Moreover, the benchmark for a one-year revolver's interest margin is reset monthly. Given the rapidly changing situation relating to the pandemic, any exercise to structure a pricing grid tied to it will be pointless."

Lending relationships
Lenders committing an aggregate amount of US$100m or above to tranches A or C will receive the MLA title and top-level all-in pricing of 95bp and 140bp respectively (not including the Covid premium), via participation fees of 30bp and 90bp.

Those joining with US$50m–$99m as lead arrangers earn all-ins of 92.50bp and 138.33bp for tranches A and C, respectively, via fees of 27.50bp and 85bp. Banks taking US$10m–$49m as arrangers receive all-ins of 90bp and 136.67bp for tranches A and C, respectively, via fees of 25bp and 80bp.

These all-in calculations do not include the fee premiums for tranches A and C.

Tranche B pays a margin of 100bp over CNH Hibor. MLAs taking US$45m-equivalent or above receive a top-level all-in pricing of 130bp via a participation fee of 30bp, while lead arrangers coming in for tickets of US$30m–$44m earn an all-in of 127bp through fees of 27bp. Arrangers joining with US$10m–$29m are offered an all-in of 125bp via a 25bp fee.

The deadline for commitments is August 28.

Trafigura's Singapore unit is the borrower and proceeds are for refinancing and general corporate purposes.

The loan agreed by Trafigura in September last year comprises a US$750m 365-day revolver (tranche A), a US$875m-equivalent one-year renminbi term loan (tranche B) and a US$300m three-year term loan (tranche C).

DBS Bank, Industrial and Commercial Bank of China London branch, StanChart and SMBC were the MLABs of the facility. CCB and ICBC were the active bookrunners of the renminbi tranche. CTBC Bank was the coordinator of the Taipei bank meeting.

Last month, Trafigura Trading, a subsidiary of Trafigura Group, signed a US$4bn loan to renew its North American borrowing base credit facility.

The one-year facility was reduced from US$4.395bn because of a smaller financing need in the lower priced commodity environment, the company said.

MUFG, Natixis and Societe Generale were lead arrangers and joint bookrunners on the financing. MUFG also acted as administrative agent.

Trafigura posted a 27% year-on-year rise in net profit to US$542m for the six months to March 31, its highest first-half net profit since 2016. This was despite US$580m in impairments as its oil and metals trading divisions thrived in the extreme volatility caused by events in the Middle East and the coronavirus pandemic.

(Reporting By Chien Mi Wong, Evelynn Lin and Mirzaan Jamwal; additional reporting by Prakash Chakravarti; editing by Vincent Baby)