Stendal Pulp Mill
European Manufacturing Deal of the Year 2002
The Eu828 million ($812.7 million) Stendal pulp mill financing in 2002 represents Germany's largest project financing to date. It is the first pulp mill of its kind in the country. The contractual structure featured strong credit support features to work around market risk and the cyclical nature of the industry.
Stendal's sponsors are Mercer International (63.6%), RWE Industrie Losungen (RWE IN) (29.4%) and FAHR Beteiligungen (7%). Project company Zellstoff Stendal is executing the project. HypoVereinsbank (HVB), which led the transaction, fully underwrote the Eu828 million project facilities. Equity investment was Eu100 million, with a stand-by facility of Eu30 million and start-up cash flow of Eu26.1 million. Other costs incorporated in the EPC contract amounted to Eu321.5 million. The project reached financial close in August 2002. Financing breaks down into six tranches, all with different profiles. Eu857 million splits two ways, tranche A with a tenor of eight years and tranche B with a tenor of 15 years. Both are state guaranteed with a margin of between 60 and 75bp over Libor. Tranches C, D and E are uncovered loans totalling Eu82 million with respective tenors of 5.5 years, eight years and 15 years. Their margins range from 150-155bp. The last tranche of five years is Eu160 million bridging facility for quasi-state receivables and has a margin 125bp. The debt will amortize over 15 years as the mill should be cashflow positive fairly quickly. After a grace period of four years post-construction, some debt will be serviced on the loan's average weighted life of eight years ? so after 5.5 years 65.5% of the debt will have been serviced. The deal was syndicated down to participant banks late last year. Stendal benefits from 70% full government cover and federal state deficiency guarantee. As well as this, up to 80% of losses are government guaranteed. As the project is based in Germany and is recognised as useful for national economy, it will receive these aids as an incentive for economic growth. Wolfram Ridder, vice president at Mercer International, says: ?It was a highly complicated process, just to get it to financial close, which is why other companies did not pick up the contract. Germany has the most demanding environmental regulations in terms of permits. But with our last project, the smaller Rosenthal pulp mill, we proved our ability to work with these. Working with these EU processes was difficult and time consuming.?The pulp industry is cyclical and therefore volatile. The result is that banks are wary. But with HypoVereinsbank and our financial advisors Babcock & Brown, we have structured a deal that compensates for the cyclical nature of the industry. Mercer is a smaller company and that allowed us to be more flexible and reactive. However, although it is a cost efficient deal, the project is not dependent on state aid.? The bridge facility carries a one-year debt reserve service account (DRSA) specifically designed to cope with a downturn in the market. In addition, there is the payment deferral system and an average debt service cover ratio (ADSCR)-linked distribution lock-up test. The ADSCR was 1.70x, showing strong project economics. At the time of coming online Stendal will be in a good position to begin battling with the cyclical industry. Downside scenarios have proved that the project will remain robust in unfavourable conditions. Pulp production from the mill will be sold in short- and mid-term contracts of one to five years and be around 552,000 in output per year. The mill will be using new, but proven, technology to produce high quality northern bleached softwood kraft pulp. It is the first greenfield mill producing pulp of this quality in decades. Ridder of Mercer International says: ?Experience tells us that the demand is there for this kind of pulp. We're right at the biggest net import market in the world. Germany has huge forest resources with scattered ownership. They need reorganising and to be made suitable for use. As a company we do not own any forest, which is special in the rest of the world, but typical for Germany.?Stendal uses state of the art technology and capacity for this particular kind of softwood ? it is classed as ?world size'. The mill was an unusual project to come to market, says Ridder, but has been planned for many years. He adds: ?We will be the cost leader, have considered the environmental regulations and Stendal is cost-efficient. These things mitigate any market risk.? Freight costs will be the main project outgoing, with delivery on a truck by truck basis. The plant will service the European market and Mercer aims to be able to deliver to its customer base within six to eight hours as opposed to the usual six weeks common in other markets.
Zellstoff Stendal
Status: closed 20 August 2002
Size: Eu1 billion
Location: Sachsen-Anhalt, Germany
Description: Financing of a pulp mill to service the European market
Sponsors: Mercer International (63.6%), RWE IN (29.4%) and FAHR Beteiligungen (7%).
Debt: Eu828 million ($812.7 million)
Lead arranger: HVB Group
Lawyers to the lender: Clifford Chance Punder
Lawyers to the sponsors: Cleary, Gottlieb, Steen & Hamilton
Financial advisor: Babcock & Brown
Market advisor: NLK Consultants Inc
Technical/wood supply advisor: Jakko Poyry Management Consulting
Insurance advisor: Bankrisk Services Marsh
Model auditor: PKF Financial Planning
Project development auditor: PwC
The Eu828 million ($812.7 million) Stendal pulp mill financing in 2002 represents Germany's largest project financing to date. It is the first pulp mill of its kind in the country. The contractual structure featured strong credit support features to work around market risk and the cyclical nature of the industry.
Stendal's sponsors are Mercer International (63.6%), RWE Industrie Losungen (RWE IN) (29.4%) and FAHR Beteiligungen (7%). Project company Zellstoff Stendal is executing the project. HypoVereinsbank (HVB), which led the transaction, fully underwrote the Eu828 million project facilities. Equity investment was Eu100 million, with a stand-by facility of Eu30 million and start-up cash flow of Eu26.1 million. Other costs incorporated in the EPC contract amounted to Eu321.5 million. The project reached financial close in August 2002. Financing breaks down into six tranches, all with different profiles. Eu857 million splits two ways, tranche A with a tenor of eight years and tranche B with a tenor of 15 years. Both are state guaranteed with a margin of between 60 and 75bp over Libor. Tranches C, D and E are uncovered loans totalling Eu82 million with respective tenors of 5.5 years, eight years and 15 years. Their margins range from 150-155bp. The last tranche of five years is Eu160 million bridging facility for quasi-state receivables and has a margin 125bp. The debt will amortize over 15 years as the mill should be cashflow positive fairly quickly. After a grace period of four years post-construction, some debt will be serviced on the loan's average weighted life of eight years ? so after 5.5 years 65.5% of the debt will have been serviced. The deal was syndicated down to participant banks late last year. Stendal benefits from 70% full government cover and federal state deficiency guarantee. As well as this, up to 80% of losses are government guaranteed. As the project is based in Germany and is recognised as useful for national economy, it will receive these aids as an incentive for economic growth. Wolfram Ridder, vice president at Mercer International, says: ?It was a highly complicated process, just to get it to financial close, which is why other companies did not pick up the contract. Germany has the most demanding environmental regulations in terms of permits. But with our last project, the smaller Rosenthal pulp mill, we proved our ability to work with these. Working with these EU processes was difficult and time consuming.?The pulp industry is cyclical and therefore volatile. The result is that banks are wary. But with HypoVereinsbank and our financial advisors Babcock & Brown, we have structured a deal that compensates for the cyclical nature of the industry. Mercer is a smaller company and that allowed us to be more flexible and reactive. However, although it is a cost efficient deal, the project is not dependent on state aid.? The bridge facility carries a one-year debt reserve service account (DRSA) specifically designed to cope with a downturn in the market. In addition, there is the payment deferral system and an average debt service cover ratio (ADSCR)-linked distribution lock-up test. The ADSCR was 1.70x, showing strong project economics. At the time of coming online Stendal will be in a good position to begin battling with the cyclical industry. Downside scenarios have proved that the project will remain robust in unfavourable conditions. Pulp production from the mill will be sold in short- and mid-term contracts of one to five years and be around 552,000 in output per year. The mill will be using new, but proven, technology to produce high quality northern bleached softwood kraft pulp. It is the first greenfield mill producing pulp of this quality in decades. Ridder of Mercer International says: ?Experience tells us that the demand is there for this kind of pulp. We're right at the biggest net import market in the world. Germany has huge forest resources with scattered ownership. They need reorganising and to be made suitable for use. As a company we do not own any forest, which is special in the rest of the world, but typical for Germany.?Stendal uses state of the art technology and capacity for this particular kind of softwood ? it is classed as ?world size'. The mill was an unusual project to come to market, says Ridder, but has been planned for many years. He adds: ?We will be the cost leader, have considered the environmental regulations and Stendal is cost-efficient. These things mitigate any market risk.? Freight costs will be the main project outgoing, with delivery on a truck by truck basis. The plant will service the European market and Mercer aims to be able to deliver to its customer base within six to eight hours as opposed to the usual six weeks common in other markets.
Zellstoff Stendal
Status: closed 20 August 2002
Size: Eu1 billion
Location: Sachsen-Anhalt, Germany
Description: Financing of a pulp mill to service the European market
Sponsors: Mercer International (63.6%), RWE IN (29.4%) and FAHR Beteiligungen (7%).
Debt: Eu828 million ($812.7 million)
Lead arranger: HVB Group
Lawyers to the lender: Clifford Chance Punder
Lawyers to the sponsors: Cleary, Gottlieb, Steen & Hamilton
Financial advisor: Babcock & Brown
Market advisor: NLK Consultants Inc
Technical/wood supply advisor: Jakko Poyry Management Consulting
Insurance advisor: Bankrisk Services Marsh
Model auditor: PKF Financial Planning
Project development auditor: PwC
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