Bonny Gas Transport's US$680 million LNG ship refinancing did exactly what a refinancing should- namely, take four existing historical loans with high margins and repackaged them into one new loan with a much more attractive repayment profile

The deal is indeed notable for incredibly tight margins - starting at LIBOR plus 75bp - showing how well the sponsors and their advisers have managed to insulate the company and the nine ships initially covered by the financing from country-specific risk associated with Nigeria.

However the structure of the deal is more innovative than that, as it allows Bonny Gas Transport, or BGT as it is generally known, to take on extra debt covering an extra four ships, while also adding some extra flexibility for business development outside the programme.

At the core of the deal's eventual success is BGT's impressive track record. Since the first delivery to Italy's Enel in October 1999 it has been reliably plodding away, delivering LNG from the Nigeria LNG (NLNG) plant at Bonny Island (in the troubled Niger Delta) around the Atlantic Basin - principally to import terminals situated in Spain and France.

These aspects, combined with the fact that the company is registered in Bermuda and that ships are by nature not tied to a single territory, and you had a lot of confidence building among the prospective bankers that were circling the deal before MLAs were appointed a few weeks ago.

One banker involved on the MLA side explains this: 'The banks have taken a lot of comfort from this being a refinancing and from BGT having demonstrated a track record and an acceptable level of asset security. I think it is a combination of it being a refinancing and just being logical really.'

The original financings

This deal covers nine ships initially, all of which are owned by BGT and on long-term time charters to NLNG. These charters provide the money with which BGT pays off its loans.

The original financings were all priced well above LIBOR plus 200bp - indeed, closer to 300bp. They were as follows:

• 1999: A US$160 million syndicated loan via Credit Suisse First Boston for two ships - the LNG Rivers and LNG Sokoto for the Train 3 expansion project.
• August 2001: The inheritance of a loan whose outstanding repayments stood at US$210 million for two ships acquired from another company- the LNG Edo and the LNG Abuja. The final repayment for this was due in June 2007. ANZ and BNP Paribas (the financial adviser and one of the MLAs for this overall refinancing) were the lead arrangers for this loan.
• September 2001: BGT agreed a syndicated loan via Credit Suisse First Boston worth US$100 million for the construction of the LNG Bayelsa - which was delivered in February 2003.
• March 2003: A US$460 million loan to partly fund the construction of four new vessels. The arrangers for this were ABN AMRO, Credit Lyonnais, Fortis, ING, HVB, Verein und Westbank and WestLB.

The sponsors

BGT was established in Bermuda in 1989 by the NLNG holding company to take care of the shipping arm of the project. It is a wholly-owned subsidiary of NLNG, and as such has the following ownership:

• Nigeria National Petroleum Corporation (NNPC - 49 per cent)
• Shell (25.6 per cent)
• Total (15 per cent)
• ENI (10.4 per cent)

Shell, Total and ENI are the LNG buyers from the NLNG plant so are ultimately responsible for finding destinations for the cargoes.

The destinations for these shipments are all in the Atlantic Basin - and though more is now passing west over the Atlantic after the completion of trains 4 and 5 (the NLNGPlus Project) at the turn of last year, the large bulk goes to European terminals. In 2005, just 2 per cent of NLNG's output went to America, with 42 per cent going to Spain, 35 per cent to France, 13 per cent to Portugal and nine per cent to Turkey.

However with the completion of Train 6 in late 2007 or early 2008, around half of the Bonny Island plant's output will likely go to America, with the other half to Europe.

The refinancing

In the financing, BNP Paribas was financial adviser to BGT, while Holman Fenwick & Willan provided legal advice and March insurance advice. Norton Rose was legal adviser to the lenders.

Though this is predominately a refinancing deal, in the round it is a lot more innovative than that. Specifically, it allows BGT to borrow up to US$800 million, up to US$120 million more than the refinancing element covers. BGT can use this extra borrowing in relation to any of the 13 total ships that it owns, plus significant added flexibility in terms of its future shipping activities.

A tiered repayments grid is set at LIBOR plus 75bp over 12 years, with further step ups to 85bp and 95bp depending on the extra borrowings BGT takes on under the facility.

This is quite an improvement compared to the initial four loans that this deal has bought out (see section above) - all of which were set well above LIBOR plus 200bp.

So it can be seen that the 12 MLAs involved (see summary table below) were pretty confident that the deal was very low risk - quite an achievement for the sponsors and their advisers given the risks associated with Nigeria. These range from basic political risk to the continuing guerilla war against the international oil and gas industry that is taking place there at the moment.

There was also a twist in the tale later in the day, when Italian export credit agency SACE expressed its interest in joining the financing. It was touch and go whether it would join for a while due to a tight time-schedule, but in the end it signed on for a US$200 million untied loan, thereby reducing the banks' initial commitments to US$40 million each as part of a US$480 million commercial banks tranche.

So why was the pricing so tight for the commercial debt? The reasons are pretty straightforward, consisting of BGT's demonstrable track record since its inception in 1989 - despite what has been happening in Nigeria- combined with the general insulation of the financing structure from sovereign risk.

Much of that can be put down to the very fact that these are ships that are being refinanced. One of the MLA bankers on the deal said of this: 'When you have a mobile asset as security you take a lot of comfort in that compared to a land-based financing.'

After all, even if the worst comes to the worst at Bonny Island and the ships can no longer ply their trade from there, they can always go somewhere else. An LNG plant does not have the same ability to sail away when the going gets tough…

The deal at a glance