Odebrecht's $1.34 billion financing of two drillships is the largest in a series of multi-tranche mega-financings for oil and gas projects in Brazil.

The Norbe VIII & IX financing, for two drill-ships to be chartered to Brazil's national oil company, Petrobras, was originally underwritten by Santander RBS, Societe Generale and BNP Paribas, but the banks invoked a material adverse change clause after the Lehman Brothers bankruptcy, so the deal had to re-built. "The deal was supposed to be in the market in September/October 2008 but was eventually closed on October 2009," says Marco Rabello chief financial officer of sponsor Odebrecht Oil & Gas. "We already had a strong project, but some of the issues that were changed were: higher spread, higher fees, club deal with equal titles, a debt service coverage ratio of 1.2x instead of 1.15x, shorter tenor, no balloon instead of 12% uncovered balloon, and the participation of two ECAs in the project, Giek and Kexim."

Odebrecht had initially explored the possibility of trying to tap JBIC funding and looked at mini-perm structures, but did not want to delay the financing even more by having to look for Japanese equity investors, and dismissed a mini-perm due to the refinancing risk.

The deal was successfully restructured by financial advisers BNP Paribas, Santander and Societe Generale. The deal closed with a combination of ECA facilities and more than $900 million raised from the commercial bank market. Despite the tightened credit market, the transaction was oversubscribed with a group of 12 banks and three ECAs.

Rabello says he had had more than 30 one-to-one meetings with banks to carefully explain the project, and the future finance needs that will be required to sustain the growth of Odebrecht Oil & Gas. Odebrecht Oil & Gas is a standalone company that was separated from Construtora Norberto Odebrecht in 2007 to hold the group's investment in oil and gas activities. Both Odebrecht Oil & Gas and Construtora Norberto Odebrecht are wholly owned subsidiaries of Odebrecht SA, the group holding company.

Odebrecht closed the financing on 9 October. The deal breaks down into $335 million in sponsor equity, a $274 million loan covered by Norwegian export credit agency GIEK and funded by Eksportfinans, a direct loan from Kexim of $165 million, a Kexim-covered loan of $135 million and a $770 million commercial bank tranche. The ECA facilities have a tenor of 12 years.

Odebrecht was able to hold out on to 80% leverage but the commercial bank debt tenor was reduced from 12 years (2 years in construction plus 10 years) to 10 years door-to-door. Pricing on the uncovered debt starts at 340bp over Libor, stepping up to 415bp over the life of the loan. The average DSCR is 1.2x (this compares with 1.15x on Odebrecht's Norbe VI) with a dividend lock below 1.2x. There is a six-month debt service reserve account and a three-month operating and maintenance account.

Odebrecht was selected by Petrobras to build, operate and charter for ten years two drillships capable of operating in the Campos Basin at water depths of up to 10,000 feet. Odebrecht signed a turnkey, fixed-price, date-certain, lump-sum construction contract with Daewoo Shipbuilding and Maritime Engineering (DSME) in Korea. "We have disbursed approximately 47% of the total loan (as of beginning on February 2010). The construction is going according to schedule," says Helena Ramos, finance manager at Odebrecht.

The financing closed after banks had become aware of the cost overrun issues that hampered rival Schahin's Black Gold deal. This made some of the typical banks active in the sector reluctant to approve the deal because they did not want to increase their exposure to the sector until the Black Gold issue was resolved.

Project banks will place drillship construction contracts under greater scrutiny on future transactions. Nevertheless, Ramos is confident the project can avoid cost overrun issues: "The construction is taking place at the DSME shipyard with a solid track record of delivering drilling units on time and according to the budget. In addition Kexim offers a refund guarantee for any amounts paid to the shipyard in case of a default of the yard during the construction progress. Odebrecht has hired an independent engineer to cross check the chosen design (DSME 10,000) with Petrobras specifications."

Construction has started and scheduled delivery dates for the two drillships are January 2011 and March 2011, respectively, with a transportation time of around two to three months to reach Brazil. The delivery date set by Petrobras is November 2011, but delivery can still take place up to November 2012 with penalties. The nine-month buffer is historically a long time compared with other drillship agreements, but gives, in the post-Schahin era, additional comfort to the lenders.

The drill-ships were financed together to lower transaction costs and get a clear run in the lending market, and because the delivery of the drillships is just 45 days apart. Each drill-ship is owned by a separate special purpose vehicle but once cash has serviced the debt of one it can be used to make up a shortfall in the other. Their cross-collateralisation includes the insurance, DSCR calculation, revenue and default. During operation the DSCR is calculated on a consolidated basis. While the disbursement to each SPV is slightly different, the repayment profiles are identical.

Odebrecht Oil & Gas hopes to replicate the structure on future drillship deals and Petrobras wants 19 more units in 2010. Rabello is also seriously considering a capital markets refinancing once the drillships are successfully in operation.

ODN VIII and ODN IX
Status: Signed 9 October 2009
Size: $1.68 billion
Location: Brazil
Description: $1.34 billion financing for two drillships capable of operating at 3,000m
Sponsor: Odebrecht Oleo e Gas
Equity: $335 million
Charter: Petrobras, 10 years
Debt: $274 million GIEK-covered Eksportfinans direct loan, $165 million direct Kexim loan, $135 million Kexim-covered loan and $770 million commercial bank loan
Tenor: 12 years (covered and ECA), 10 years (commercial bank)
Financial advisers: BNP Paribas, Santander, Societe Generale
Lead arrangers: BNP Paribas, Santander, Societe Generale, Banco do Brasil, Banco Espirito Santo, Calyon, HSBC, Caixo Geral de Depositos, NIBC, ING, WestLB, Credit Industriel et Commercial
ECAs: Kexim, Eksportfinans, GIEK
Accounts bank: JP Morgan
Sponsor legal: Mayer Brown
SPC legal: Akerman Senterfitt (Delaware), Maples and Calder (Cayman Islands), Gus Constantakis Chambers (Bahamas)
Lender legal: White & Case (US), Souza Cescon (Brazil)
Accounts bank legal: Clifford Chance
Kexim legal: Yulchon
Technical: Okeanos
Insurance: AON Bankassure
Market: ODS-Petrodata, Inc.
Model audit: Deloitte Touche Thomatsu
EPC contractor: Daewoo Shipbuilding and Maritime Engineering