Kaltim Prima Coal (KPC) has mandated CSFB to arrange a syndicated loan to refinance a $325 million existing facility that the company took out last year. That loan was taken, in turn, to refinance an existing $187 million facility that had come up for repayment when KPC was bought by Bumi Resources from BP and Rio Tinto in October 2003.
The new senior facility will be two and half years in maturity and will be between $310 million and $385 million in size. It has an amortizing repayment schedule of 10 equal quarterly installments, starting three months after initial drawdown. It will carry a spread of 4% over three-month Libor.
The loan will be backed by a number of security measures including the assignment of KPC's sales contracts with its international buyers of its coal. These buyers include Taiwan Power, Caste Peak Power of Hong Kong, and National Coal Supply Corp of Israel, which together took nearly 45% of the company's output in 2003. There will also be a cash flow waterfall system giving lenders some control over the use of cash generated from coal sales.
According to sources close to the company, KPC decided to raise a syndicated loan after yields on Indonesian bonds started rising earlier this year. The company had been looking to do a dollar bond for several months and appeared to be just waiting for the right time to launch. But due consideration to the economics of the company appears to have persuaded them to go for the loan and abandon the bond deal.
"Given the company's own cash flow projections, they felt that a five-year bond structure was longer and more expensive than was necessary," said the banker. "They wanted to tailor the debt to their cash flows and not pay margin on money they don't need."
CSFB is now in the market looking for commitments from other banks. It is offering a range of fees based on the size and timing of commitment. It is offering 25bps onto the standard fees if banks commit before 24 August, with standard fees ranging from 2% down to 0.5% depending on the size of the commitment. The final size of the deal will depend on the response from the market. An information memorandum including forecasts from the company will be distributed this week.
With a high coal price and low cost of production, KPC is certainly enjoying the fruits of the current commodity boom. In the first half of this year, the company made profits of $113 million on sales of $280 million, a margin of 40%. However its debt level has more than doubled since the same period last year from $187million to $365 million, necessitating this new facility.