Israel is set to become a net exporter of fuel, thanks to large natural gas deposits that have been discovered in the Mediterranean Sea in recent years. The Tamar field was the largest natural gas find of 2009, and the first of many significant gas deposits discovered off the country’s coast. On 10 August 2012 three of the sponsors developing the field reached financial close on a $900 million debt facility. Not only does the deal lay the foundations for future financings of Israeli gas projects, but it is also notable for its hybrid structure.

The Tamar field’s sponsors are Noble Energy (36%, also operator), Isramco Negev 2 (28.75%), Delek Group (31.24%) and Alon Group (4%). The gas field is located 90km from Haifa and has an estimated reserve of 8.4 trillion cubic feet of gas. The sponsors have signed a 15-year offtake agreement of 2.7 billion cubic meters per year with Israel Electric Corp, which they predict could generate between $400 million and $750 million per year. Over the next 10 years Tamar is expected to supply between 50% and 80% of the natural gas consumed in Israel.

After the Tamar find, several other large gas deposits have discovered in the region. The Dalit field is due to start production later this year and the huge Leviathan field is also nearing production. The debt financing for Leviathan, which holds about 16 trillion cubic meters of gas, is expected to signin 2013. In addition to its Tamar investment, Delek is also one of the main sponsors on Leviathan, and international lenders will have been watching the Tamar deal with one eye on its bigger brother.

Yossi Guvra, chief financial officer of Delek Energy, commented: “The discovery of Tamar caused a revolution in the Israeli power sector, allowing it to switch from burning expensive and polluting fuels to the consumption of cheap and environmental-friendly natural gas.”

Total costs for the Tamar project have been estimated at $3 billion. To finance their investments in the development, Delek and Alon Group, through Dor-Alon Energy, established special purpose vehicles (SPV) that could be used to borrow the commercial debt. Delek’s SPVs, Delek Drilling and Avner Oil each own 15.62% of the project, while Dor Alon’s Dor Gas Explorations holds all of its 4% equity stake. The three SPVs will also be providing around $400 million collectively as equity.

Delek Drilling, Avner Oil and Dor signed the $900 million eight-year finncing in August, with Dor being allocated $102 million of the debt and the other two receiving $399 million each. This deal replaced a $430 million bridge loan signed by the three borrowers in June 2010. HSBC and Barclays Capital were the lenders on that deal, providing $215 million each, and were subsequently appointed financial advisers for the new facility.

Nine lenders signed on the long-term debt. Barclays, HSBC, Citigroup, Credit Agricole, Nedbank, Mizhari and Hapoalim each provided $90 million, Natixis and Discount Bank signed for $75 million, Societe Generale committed to $70 million and ING underwrote $50 million. The dollar-denominated facility is priced at 475bp over 3-month Libor pre-completion, falling to 425bp for the first two years following completion, rising again to 475bp for the next two years, and then ending at 550bp until maturity. A minority proportion of available cash flows from the field will swept for the benefit of lenders.

The hybrid deal has been structured to combine project finance risk allocation with reserve-based lending metrics, such as a reserve tail. “The Tamar financing was structured as a hybrid between project finance, based on the analysis of future contracted cash-flows, and RBL based on the reserves potential, thus enabling us to attract both pools of investors in a very challenging period in the banking world,” Guvra explained.

In a typical reserve based deal, the size would be determined by a net present value figure with reference to a loan-life coverage ratio and variable borrowing base. Instead Tamar is structured around a fixed debt service coverage ratio and amortization schedule so that it is sized backwards to meet certain repayments set over its eight-year tenor. The extra project finance rigidity creates security for the lenders because the deal is more closely structured around cash-flows. But the deal also benefits from a 25% reserve tail, comforting banks that the underlying resource will remain substantial after the debt matures.

The Delek subsidiaries began drawdown on a $205 million portion of the debt following financial close in order to repay the balance of the original bridge loan. All three borrowers will begin repayment of the loan on 31 January 2014. The Delek Group is considering launching a $1.5 billion bond issue to recycle the debt after construction is complete. Operations are expected to begin at the site during the second quarter of 2013. 

Avner Oil, Delek Drilling and Dor Gas Exploration
STATUS
Signed 20 April 2012, financial close 10 August 2012
SIZE
$3 billion
DESCRIPTION
Development of the Tamar offshore gas field, located 90km from Haifa, Israel.
SPONSORS
Delek Group and
Dor Alon Energy
DEBT
$900 million
LENDERS
HSBC, Barclay Capital, Citigroup, Credit Agricole, Nedbank, Mizrahi, Hapoalim, Natixis, Discount Bank, Societe Generale and ING.
SPONSORS’ FINANCIAL ADVISeRS
Barclays Capital and HSBC
LENDERS’ LEGAL ADVISER
Shearman & Sterling
SPONSORS’ INTERNATIONAL LEGAL ADVISER
Allen & Overy
SPONSORS’ LOCAL LEGAL ADVISER
Agmon & Co,
Rosenberg Hacohen & Co
LENDERS’ INTERNATIONAL LEGAL ADVISER
Shearman & Sterling
LENDERS’ LOCAL LEGAL ADVISER
Yigal Arnon & Co
OPERATOR
Noble Energy Mediterranean
TECHNICAL CONSULTANT
Shaw
MARKET CONSULTANT
Purvin & Gertz and Economic Models
INSURANCE CONSULTANT
Moore McNeil and Leaderim