Coordinating bank, sole bookrunner and mandated lead arranger Deutsche Bank closed a three-year US$230mn pre-export finance (PXF) facility in favour of Ferrexpo, Ukraine’s largest iron ore exporter. WestLB, BNP Paribas, Fortis Bank Nederland, Natixis, and RZB also joined the facility as mandated lead arrangers.

The facility was the first syndicated deal to be closed in Ukraine since the start of the crisis, demonstrating that there is appetite in the market to close Ukrainian deals, given the right type of borrower and deal structure.

As Kris Van Broekhoven, managing director, head of structured commodity trade finance EMEA, at Deutsche Bank, comments: “This transaction was hugely important to keep the door open for pre-export facilities in Ukraine.

“The country is going through a difficult time and strategic exporters like Ferrexpo, who not only performed well throughout the downturn but also benefit from a devaluation of the local currency, should not be penalised by having their access denied to international banks or investors.”

Despite challenging market conditions, the transaction was oversubscribed and increased from the original launch amount of US$200mn to US$230mn.

Although both Ukraine’s economic and political situation was damaged by the global downturn, Ferrexpo’s strong performance and solid track record allowed banks to be comfortable taking on the risk of the deal. The PXF structure also helped mitigate the country risk involved.

The PXF deal is secured by a pledge of export receivables. Ferrexpo AG (the marketing arm) and Ferrexpo UK (finance vehicle) are joint borrowers, while Ferrexpo Poltava Mining (miner/producer) and Ferrexpo PLC (LSE listed group) each provided a guarantee.
The loan was available for drawdown from January 1, 2010, and will be used for refinancing and general corporate purposes.

The loan matures 36 months from January 1, and is to be repaid in 24 equal monthly instalments, with the first instalment due in January 2011. The margin of the loan is 7% over Libor.

This new deal replaces the outstanding amount due on a previous pre-export facility signed by Ferrexpo in 2007 and will also support Ferrexpo’s expanding capex programme designed to expand production capacity, extend mine life and improve the quality of pellets produced.

Fortis Bank Nederland joined the transaction during 2009, and gave this official comment: “Fortis Bank Nederland would like to congratulate Ferrexpo for the successful closure of its three-year pre-export financing facility despite challenging market conditions.
“With its excellent track record of uninterrupted operation over 30 years and export volume over 80% of its output, Ferrexpo has proven its ability to access liquidity beyond the limitations of the country it’s operating in.”

Law firm Denton Wilde Sapte (DWS) also worked on the deal, and Jonathan Solomon, partner at the firm, elaborates on the obstacles the deal team overcame in putting together the transaction: “This deal was challenging on several fronts, from a legal and political risk angle – plus Ukraine has been hit badly by the economic downturn with many big companies going through restructuring processes.

“Consequently it was far harder for the business relationship people at the bank to get positive responses from their credit committees. So we had to have a very tight structure in place, with stronger covenants, as people needed as much ammunition as possible to sell the deal internally.”

It is too early to say that this transaction heralds a glut of Ukrainian deals given the shaky political situation. However, it does demonstrate that the market is not a completely no-go area to do business.

DWS’s Solomon elaborates: “What the Ferrexpo deal shows is that if you have a good structure, with a borrower that has a proven track record, then lenders do have an appetite and will consider lending.”
Deal information

Borrower: Ferrexpo
Amount: US$230mn
Mandated lead arranger and bookrunner: Deutsche Bank (co-ordinating bank)
Mandated lead arrangers: WestLB, BNP Paribas, Fortis Bank Nederland, Natixis, RZB
Arrangers: JP Morgan, UBS
Lead managers: Stichting Pensioenfonds Zorg en Welzijn, VTB Bank (France), Crédit Agricole CIB
Pricing: 7% over Libor
Tenor: 3 years
Law firm: Denton Wilde Sapte
Date signed: November 27, 2009