Adaro warms up investors

Indonesian coal miner helps revive Asian high yield sector.

Early Friday morning (December 1), Joint leads Goldman Sachs and JPMorgan priced an upsized $400 million five-year senior secured bond deal for Indonesian Coal producer, PT Adaro.

The Reg S/144A deal priced in line with guidance at 99.005% on a coupon of 8.5%, to yield at 8.75% equivalent to 430bp over US Treasuries. Fees were a healthy 112.5bp.

The deal was heavily oversubscribed, closing with a $1.75 billion order book, an oversubscription ratio of almost six times, with 111 accounts taking part. In terms of investor type, 65% went to asset managers, 15% went to private banks, 10% went to banks, and the remaining 10% allocated to insurers, brokers and others.

The deal is guaranteed by Adaro and PT International Bulk Terminal (IBT) and is, along with a $250 million loan, a refinancing package of an existing bank deal and will be used to pay down interest and the principle of a mezzanine facility.

The key challenge for the leads was getting investors up to speed on the deal's unusual structure. As a senior secured facility, the deal is rated at parity with the new bank facility.

The deal also has a rigid cash waterfall structure. Effectively, all revenues will be captured in a cash trap account in an offshore vehicle incorporated in Singapore. A portion of that cash is sent back to the company to pay operating expenses and taxes.

The balance is then allocated toward an interest payment account for the loan facility and the bond, which is paid quarterly. Once that has been paid a debt service coverage test is undertaken and if that test is met then the interest is paid on the mezzanine. Following the interest payment on the mezzanine, all residual cash is split evenly toward the loan and bond and the mezzanine.

In effect all excess cash generated by the company is allocated to pay down debt.

Adaro produces an environmentally friendlier coal, labeled Enviro-coal (a low sulphur generating, low polluting coal), which is in high demand because of requirements to reduce emissions, particularly within regions that have established strict emission targets.

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