In January 2007 mandated lead arrangers ABN Amro, Credit Suisse, Santander and UBS arranged a US$6bn pre-export financing to support Brazil’s Companhia Vale do Rio Doce’s (CVRD) acquisition of Canadian mining firm Inco. It is the largest syndicated acquisition pre-export finance facility to date to close in the emerging markets.

The origins of the facility began in 2006 when the lead arrangers were invited by CVRD to jointly underwrite a large bridge financing to fund the company’s aquisition of 100% of Inco’s shares for US$18bn in cash. CVRD is the world’s largest producer of iron ore and pellets, and Inco was the second largest producer of nickel.

The US$6bn pre-export facility is structured as one of the take-outs of the original acquisition financing. The deal features two tranches, a five-year US$5bn tranche, paying a margin of 62.5 basis points, and a seven-year US$1bn tranche paying a margin of 75bp.

“ABN Amro won the mandate based on our expertise in structuring and distributing large syndicated facilities. The proposal was attractive to CVRD due to the innovative structure that fit with their cash flow requirements,” comments Ricor da Silveira, Latin American head, cross-border structured commodity finance at
ABN Amro.

The deal was structured based on the export flow of CVRD and a ‘springing lien’s mechanism that can be activated under certain circumstances. This contingent security structure involved CVRD setting up a collection account with a collateral agent, where payment of offtake contracts are pledged in favour of the lenders.

This account will only be activated if the borrower fails to make adequate repayments as required under the terms of the financing facility.

Coupled with CVRD’s strong track record of export performance, this mechanism has further helped mitigate repayment risks.

A spokesman at Santander in New York, elaborates: “The structure was innovative, enabling CVRD to borrow a significant amount on an unsecured basis, while providing comfort to the lenders that in adverse circumstances CVRD would be contractually obligated to offer pledge security in the form of export contracts and a collection account.

“The springing lien structure was subsequently utilised for another major debt facility arranged for a leading Brazilian borrower.”

ABN Amro’s da Silveira adds: “The successful syndication of this facility, with the deal being oversubscribed, reflects the attractiveness of the structure and reinforces to the market the appetite to finance acquisitions backed by strong sponsors and the right financing structure.”

The deal also improved CVRD’s position in the global mining market, moving it from fourth to third place in terms of business value. It has also helped the company diversify its product offering and enter the global nickel market.

Given these developments, CVRD announced at the end of 2007 that it had rebranded itself by changing its name to Vale to better reflect the company’s global outlook.

Deal Information:




Companhia Vale do Rio Doce (CVRD)
Amount: US$6bn
Mandated lead arrangers: ABN Amro; Credit Suisse; Santander; UBS
Tenor: 5-7 years
Margin: 62.5bp-75bp
Law firms: Hughes Hubbard & Reed (lenders)
Date signed: January 2007