Deal information

Borrower: Nord Stream
Amount: €3.9bn
Sponsors: Gazprom (51%), E.ON Ruhrgas (20%), Wintershall Holding
Lead arrangers: BayernLB, BNP Paribas, Caja Madrid, Commerzbank, Crédit Agricole CIB, Deutsche Bank, ING, Intesa Sanpaolo, KFW, Mediobanca, Société Générale, Standard Bank, SMBC, RBS/ABN Amro UniCredit
Participants: BBVA, Bank of Tokyo Mitsubishi UFJ, Espirito Santo Investment, Credit Suisse, Dexia, DZ Bank, Fortis, Natixis, Nordea, RZB, WestLB
ECAs: Euler Hermes, Sace, UFK
Law firms: White & Case (sponsors), Clifford Chance (lenders)
Tenor: 16 years (ECA-covered tranches), 10 years (uncovered tranches)
Date signed: March 16, 2010
Nord Stream closed a €3.9bn debt financing for phase one of the natural gas pipeline project between Russia and the European Union, via the Baltic Sea in March 2010. The deal is one of the largest oil and gas deals to be closed in 2010. The deal was syndicated and achieved a 60% oversubscription despite being launched in the difficult market conditions in late 2009.

The transaction featured a number of tranches, including some with export credit agency (ECA) cover. Italy’s export credit agency Sace provided a loan guarantee on a €500mn tranche, while Euler Hermes covered a €1.6bn portion.

A further €1bn tranche was guaranteed by the German government’s untied loan guarantee programme, known as UFK. It was the first large-scale use of the UFK programme for a major project financing.

The uncovered portion of the deal totals €800mn, carrying a tenor of 10 years.

“Nord Stream is one of the largest European oil and gas deals of the year, and was closed in challenging market conditions,” comments Olivier Musset, managing director – global deputy head of energy project, at Société Générale.

“The deal achieved a long tenor for a Russian deal backed by a Gazprom credit without any pledge of receivables or offshore structure in a context of very short tenors for Russian corporate deals that have generally been secured,” he adds.

The Nord Stream pipeline is to run on the seabed of the Gulf of Finland and the Baltic Sea from Vyborg in Russia, to Lubmin in the north of Germany.

The project consists of two parallel pipelines, with the first pipeline (phase one) set to be completed in late 2011. The second pipeline (phase two) is planned to be completed 18 months after the first phase, and the two pipelines together will have a total annual capacity of 55 billion cubic metres.

The €2.5bn financing for Nord Stream phase 2 has been agreed and committed by a group of banks and signing of the financing is expected in the coming weeks,“ Kathrin Eich, senior vice-president, structured export & trade finance at Commerzbank remarks as GTR goes to press.

Upon completion of the project, it is expected that the pipeline will meet more than 25% of Europe’s additional gas import requirements by 2030.

Klaus Michalak, Deutsche Bank’s global head of structured trade & export finance, remarks: “Deutsche Bank was proud to be involved in such a high profile and complex trade finance transaction. The project is of huge significance for gas energy provision in Europe and there was a strong collaborative spirit among all partners to make it work. The deal is a landmark transaction within the European-Russian financing landscape.”

Albert Filippov, vice-president, structured export & trade finance at Commerzbank, comments on why the deal appealed to lenders: “Key to its positive reception was the backing of an exceptionally strong sponsor group, a simple and robust commercial structure and support from government financial agencies.”

According to Graham Lofts, managing director, head of international loan origination, debt capital market loans, at Commerzbank: “The deal also features low technical and revenue risks. Despite its scale and logistics, the Nord Stream pipeline is technically straightforward. In essence it is a stationary pipeline with hardly any moving parts, paid according to simple availability.

“As to revenue risk, the project benefits from a strong gas transportation agreement with Gazprom, structured on a ship-or-pay basis and hence lenders have no exposure at all to volume or market risk.”