A steel grip for Severstal

In September 2008, a pool of international banks signed a five-year US$1.2bn pre-export facility in favour of Russian steel producer Severstal. The list of mandated lead arrangers includes Société Générale, Royal Bank of Scotland, Bank of Tokyo-Mitsubishi UFJ, Barclays, BNP Paribas, Citibank, Commerzbank and Deutsche Bank. BNP Paribas is a co-ordinator, documentation agent and security agent. Deutsche Bank is the facility agent.

“In the chaos of the financial markets of August and September, the MLAs mobilised successfully in putting together a pool of first tier international banks to reach the sought- after amount of US$1.2bn,” says Ilia Poliakov, managing director and deputy head of the Russia and CIS department within the natural resources and energy financing group at Société Générale Corporate & Investment Banking.

The credit agreement secures US$1.2bn available immediately after signing. The facility bears an interest rate of 2.35 basis points over Libor and has a 1.5-year grace period followed by quarterly repayments.

Linklaters provided legal advice to the eight MLAs in the frame of this transaction, secured by export and offtake contract assignments and direct debit rights and pledge over bank accounts. According to a spokesperson from Linklaters, the transaction represented a key trade finance deal in that financing was completed during the midst of the credit crunch and days after Lehman Brothers was put into administration.

“This deal was closed on September 22, 2008 and disbursed on October 3, during some of the most turbulent market conditions ever experienced,” says Mehmet Saydam, director of structured commodity trade finance at Deutsche Bank Amsterdam. “Successfully closing the deal in the current economic climate is testament to continued investor confidence in the strength of this key Russian client.”

Severstal, in combination with its European and North American assets, is Russia’s largest steel producer, with output of 17.5 million tonnes in 2007, making it the 15th largest in the world. The purpose of the facility is to finance general corporate needs of the company, including refinancing of existing debts and financing M&A transactions. The facility was partially used to acquire PBS coal, a Canadian coal producer, thus expanding Severstal’s North American operations.

According to Poliakov, the transaction was a success story despite two very challenging constraints facing both the borrower and the MLAs: raising a sufficient amount of debt, and executing the transaction in a very tight timeframe.

Commenting on the deal, Sergei Kuznetsov, Severstal CFO, says: “I am pleased to announce the successful signing of the credit agreement. In the current volatile environment in financial markets it demonstrates the strength of our company and investors’ confidence in our business model. We will use the facility to continue to grow our company and create value for our shareholders.”

Deal Information

Borrower: Severstal
Amount: US$1.2bn
Mandated lead arrangers: Barclays; BNP Paribas; Citibank; Commerzbank; Bank of Tokyo-Mitsubishi UFJ; Deutsche Bank; RBS; Société Générale CIB
Law firms: Linklaters (lenders); Allen & Overy (borrower)
Tenor: 5 years
Margin: 2.35%
Date signed: September 2008