If ever there was a credit that needed to be robust the Dolphin Energy refinancing was it – a combined bank debt and bond refinancing in a closed global capital market. But Dolphin ticked all the boxes: operating cashflows, a high calibre of sponsors and geopolitical importance. Additionally, the banks had the ability to roll over capital from the initial financing.
Although competitive pressure has begun to return to the bank market, with debt costs still high, the lower borrowing cost of the bond component in the Dolphin refinancing signals that the capital markets could have a greater role in the region as recovery picks up in the coming months.

At close, after a significant bank scale back, the financing broke down into $1.42 billion in bank debt, a $1.25 billion bond and a $218 million SACE insured facility. Additionally, there was a tranche of $1.2 billion of the project's international sponsors co-loans. An Islamic facility was also initially considered but subsequently deemed unnecessary.

In April 2008, Royal Bank of Scotland (RBS) was appointed as Dolphin Energy's financial adviser for the refinancing of $3.45 billion of bridge loans raised in 2005 which were set to expire on 31 July 2009. As an operational project with healthy cash flows, RBS and the sponsors were able to structure the deal as a 10-year, fully amortising debt with an average life of just over five years.

In April 2009, Dolphin took $2.6 billion in commitments from a club of banks, as well as commitments for a $400 million SACE insured facility, therefore covering the refinancing of the bridge, although not the original $1.2 billion loan from the project's international sponsors, which was always contemplated as part of the refinancing plan. Covering the refinancing with committed bank debt and a SACE insured facility at an early stage meant that testing the bond market could remain optional in the uncertain climate.

Once bank commitments were in place, the sponsors appointed joint lead managers for the bond, telling banks that those committing a minimum of $100 million on an uncovered basis to the bank debt would qualify. Joint lead managers for the bond were RBS, BNP Paribas, Abu Dhabi Commercial Bank and National Bank of Abu Dhabi, with RBS and BNP Paribas acting as joint bookrunners.

There was a strong market reception for the bond, and orders of around $4.8 billion were taken. The appetite was significantly better than expected at the beginning of the year, with the sponsors – Mubadala (51%), Total (24.5%) and Occidental (24.5%) – initially predicting a bond component of around $750 million. Following the show of appetite, the sponsors decided to increase the bond portion. Consequently, the refinancing package closed with all 25 banks, including the five on the SACE insured facility, scaled back by $1.36 billion on a pro rata basis in accordance with their original commitments, despite the fact that some of the banks had expressed a wish not to be scaled back earlier in the process.

The bank facilities are structured as fully amortising 10-year debt, with an average tenor of just over five years. Pricing starts at 275bp over Libor until year 3, stepping up to 300bp until year 6, and then 350bp. The SACE insured facility is priced at 175bp over Libor. Fees were 90bp for the bank debt and 80bp for the SACE insured facility. The debt-to-equity ratio was just below 70:30, the minimum DSCR was 2.4x, and the LLCR was 2.5x.

The four banks with key roles in the deal took the biggest tickets – RBS as offshore accounts bank, First Gulf Bank as onshore security trustee, Societe Generale as intercreditor and SACE agent and National Bank of Abu Dhabi as commercial bank facility agent.

Around 50% of the project revenues are based on 25-year take-or-pay gas supply contracts with quasi-governmental offtakers – Oman Oil Company, Abu Dhabi Water & Electricity Authority, Fujairah's Union Water & Electricity Company and Dubai Supply Authority – with a weighted average sale price of $1.6/mmbtu. Given the pipeline links Qatar, Oman and the UAE, the project is also of high strategic inter-governmental importance, particularly in Abu Dhabi.

Border issues played a part in the move to close, which was originally slated for 30 June, when it was revealed that Saudi Arabia and Qatar have agreed on new maritime borders. Proactively, the sponsors swiftly agreed to cover off any potential risk to ensure that the deal would get away on time and all banks reaffirmed their commitments on that basis. The deal did close before the 31 July 2009 bridge loan maturity, but only just – the bridge was repaid on 30 July.

The $1.25 billion 10-year bond priced on 23 July at par with a coupon of 5.888% and a spread of 337.5bp over US treasuries, 12.5bp inside price guidance, giving it an all-in cost of 100bp below the bank piece.

On the bond, RBS, BNP Paribas, Abu Dhabi Commercial Bank and National Bank of Abu Dhabi took orders of $4.8 billion from around 222 accounts. Take-up was fairly level across the international markets – 37% of notes were purchased in the US, 35% in Europe, 24% in the Middle East and 4% in Asia.

Dolphin Energy
Status: Financial close 27 July 2009
Description: Bond and bank debt refinancing for the Dolphin Energy gas project
Sponsors: Mubadala (51%), Total (24.5%) and Occidental (24.5%)
Financial adviser: Royal Bank of Scotland
Bond joint lead managers: Royal Bank of Scotland; BNP Paribas; Abu Dhabi Commercial Bank; National Bank of Abu Dhabi
Bond bookrunners: Royal Bank of Scotland; BNP Paribas
Bank debt mandated lead arrangers: Abu Dhabi Commercial Bank; BayernLB; BNP Paribas; Calyon; Export Development Canada; First Gulf Bank; National Bank of Abu Dhabi; Samba Financial Group; Societe Generale; Sumitomo Mitsui Banking Corporation; Bank of Tokyo-Mitsubishi, UFJ; Royal Bank of Scotland; WestLB; Arab Bank; Arab Banking Corporation; Crédit Industriel et Commercial; Europe Arab Bank; HSBC; KBC; Lloyds TSB; National Australia Bank Limited; Natixis; Standard Chartered; Commercial Bank of Qatar; Union National Bank
Lender legal adviser: Sullivan & Cromwell
Sponsor legal adviser: Shearman & Sterling
Technical adviser: Shaw Group (formerly Stone & Webster)
Market consultant: Wood MacKenzie
Insurance: Willis