Merrill initially marketed the deal at 9.75% for the fixed-rate notes and 400bp over Libor for the FRN, however, as the deal picked up traction, Merrill tightened guidance to a range of 9.375% to 9.625% and 375bp to 400bp over, respectively.
When the B1/B+ rated deal closed, the fixed-rate note priced at par with a coupon of 9.375%, a spread of 485.9bp over US Treasuries. While the FRN also priced at par with a coupon of 375bp over Treasuries. The FRN begins amortising in March 2008.
The deal garnered strong demand, closing with a final order book of $3 billion, an oversubscription ratio of just over nine times with over 120 accounts taking part. The order book was split 75% into the fixed-rate tranche and 25% into the FRN.
Geographically, the fixed-rate deal was sold 55% into Asia, 21% into Europe and 24% into the US. Indonesian accounts made up 9% of the Asian book. By investor type, this book was split 64% into funds, 28% banks, 2% insurers and 6% went to public banks and others.
For the FRN, 54% of the book went to Asian accounts (with 15% of that being bought by Indonesian investors), 27% went to Europe and the remaining 19% went to the US. By investor, funds bought the majority accounting for 63%, followed by banks with 36% and public banks and others taking the remaining 1%.
With regard to comparables, bankers noted that investors were looking primarily at last year's deal for fellow Indonesian coal producer, PT Adaro. That deal, a $300 million five-year senior secured bond deal which priced in early December 2005, is currently trading at around the 8% level.
However, the Adaro deal is not an easy comparable as it is a year shorter, is rated one notch higher and has a much more rigid structure than Berau.
The Adaro structure is unusual, in that as a senior secured facility it is rated alongside that of the new bank facility. Generally, the bond would be subordinate to a bank facility. The Adaro deal is guaranteed by Adaro and PT International Bulk Terminal (IBT). The notes, along with a $250 million loan, is a refinancing package of an existing bank deal and will be used to pay down interest and the principle of a mezzanine 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 towards 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 towards the loan and bond and the mezzanine. In effect, all excess cash generated by Adaro is allocated to pay down debt.
PT Berau Coal is 60% owned by PT United Tractors, 39% by PT Armadian Tritunggal 30% and 10% by Nissho Iwai Corporation, a well-known Japanese trading company.
PT Berau Coal produces a range of typical Indonesian sub-bituminous coal, with low ash and relatively low sulphur content and moderate heating values. The coal is suitable for use as a base load fuel for domestic and regional utilities or as a blending coal for major export utility customers.
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