OSX’ financing of its OSX 2 floating production storage and offloading unit managed to overcome difficult market conditions and reassured lenders about its charter with a start-up sister company by allowing for the possible redeployment of the FPSO in the event that oil production from the vessel’s intended field off the coast of Brazil disappoints.

The sponsor, OSX, is the offshore oil services part of Eike Batista’s EBX conglomerate The $1.09 billion FPSO will be chartered to OGX, EBX’ oil and gas exploration and production arm. The conversion of a very large crude carrier for use at the Waimea field off the coast of Rio de Janeiro state required $850 million of senior secured debt – double the debt amount required for the sponsor’s OSX 1.

The deployment of OSX 1, which is also destined for service in the Campos Basin, was an integral part of increasing lender comfort with OSX 2. The financing initially struggled to gain traction in the bank market as global economic confidence waned but OSX reassured lenders through a cross-collateralisation process, which would prevent OSX 2 drawing down on the loan until the first project had succeeded in producing oil. This was achieved on 31 January 2012.

The project represents another milestone as the largest private sector-led exploration campaign in Brazilian waters. The bareboat contract between OGX and OSX stipulates that OSX 2 could be redeployed within the Waimea field or to neighbouring fields such as Fuji, Peregrino, Ingá, Peró, Ilimani and Wikiki. In such an event, OGX, which estimates that recoverable oil volumes in the Waimea and Fuji fields alone stand at between 600 and 1,100 million barrels, would bear the cost of redeployment.

Further reassurance for lenders came from the charter payments having a guaranteed day rate of $290,000 for the first six years from first oil, and resetting to market rates after that period. The project benefited from the strong cash positions of both OSX and OGX. OSX raised $1.5 billion in an initial public offering in March 2010, while OGX has cash reserves close to $5 billion.

OSX was initially looking for starting construction pricing around the 375bp mark and argued that debt should be priced at 360bp thereafter. But eventual margins were higher, because both sponsor and charter counterparty are new entrants, if well- connected ones, the reserves at the field are not completely proven, and the trajectory for the global economy is unclear.

The financing signed on 25 October after the sponsor accepted pre-construction debt pricing of 425bp over Libor, and a post- construction margin of 450bp, with a blended average margin of 441bp, payable quarterly. The deal has a 78:22 debt to equity ratio and a minimum debt service coverage ratio of 1.2x. Market sources suggested that although margins had been affected by the initial bout of global economic uncertainty, pricing could have been higher, as credit liquidity tightened after the deal closed.

The 12-year debt facility for OSX 2 has an average life of 10 years and a grace period during construction. Straight-line amortisation will start three months after the start of oil production by the unit, which OSX has suggested will happen by the middle of 2013.

The joint lead arrangers and coordinators were ING, Itau-BBA and Santander, which underwrote the facility and each provided $183.33 million, subsequently joined by HSBC as mandated lead arranger with a $100 million commitment. Citibank, ABN AMRO, Banco do Brasil and NIBC came onboard after a roadshow that began in May. Citigroup committed $60 million, ABN AMRO and Banco Brasil both provided $50 million while NIBC committed $40 million. The leads continued to sell down their positions after the deal signed, with DNB joining the syndicate in December, allowing them to reduce their positions.

The FPSO will be chartered to OGX for 20 years and will be converted by SBM Offshore under a fixed date engineering, procurement, construction and installation contract, which was signed in April 2011. The unit will have a storage capacity of 1.3 million barrels and a production capacity of 100,000 barrels per day. Lenders said that they were reassured that conversion of the VLCC would take place at the Keppel Fels shipyard in Singapore.

But some banks suggested that the risk premiums attached to the pricing of future OSX projects could rise, because OGX has promised that OSX 4 and OSX 5 FPSOs will be constructed in Brazil in order to fulfil a local content agreement between OGX and the Brazilian government during the concession process.

OSX is likely to refinance the vessel once the FPSO is in operations. “As long as the unit is operating and the market is open, refinancing the unit on the capital markets is an excellent alternative to open space on banks’ balance sheets and to access a different base of investors,” says OSX’ chief financial officer, Roberto Monteiro.

OSX2 Leasing
STATUS: Signed 25 October
SIZE: $1.09 billion
DESCRIPTION: $850 million financing for an FPSO to be located at the Waimea field in the Campos Basin, offshore Brazil and moored through a turret system in a maximum water depth of 200 metres
SPONSOR: OSX
EQUITY: $240 million
CHARTERER: OGX
DEBT: $850 million senior secured loan
TENOR: 12 years
JOINT LEAD ARRANGERS: ING, Itau-BBA, Santander
MANDATED LEAD ARRANGER: HSBC
LENDERS: Citi, ABN AMRO, Banco do Brasil, NIBC, DNB NOR
ACCOUNTS BANK: Citi Netherlands
SPONSOR LEGAL COUNSEL: Allen & Overy
LENDER LEGAL COUNSELS: White & Case (international) and Souza Cescon Barrieu & Flesch (domestic)
TECHNICAL: Okeanos
INSURANCE AON CONTRACTOR: SBM Offshore