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CASE STUDY: Minera Escondida Digs into US$1.2bn Term Loan

CASE STUDY: Minera Escondida Digs into US$1.2bn Term Loan

Minera Escondida a Chilean subsidiary of BHP Billiton, secured a US$1.2bn 5-year term loan at competitive prices to help the miner develop the world’s largest open-pit copper mine. The deal consisted of one of the largest US dollar syndicated facilities in Chile’s metals and mining industry to date.

Background

Minera Escondida is owned by BHP Billiton (57.5%), Rio Tinto plc (30%), JECO Corp. (10%), with the remaining 2.5% owned by a joint-venture comprised of Mitsubishi Corp., Nippon Metals & Mining Co. and Mitsubishi Materials Corp.

After mandating 8 banks as mandated lead arrangers, the company initially sought a facility of US$1bn with a potential US$500mn pre-closing accordion feature, giving the company the option to increase its line of credit. Proceeds of the funding would be partly used to refinance an existing US$275mn 1-year term loan maturing in mid-2017.

After successfully attracting a number of other retail financial institutions and DFIs, the company successfully secured an upsized US$1.2 5-year term loan in September 2016.

Transaction Breakdown

Minera Escondida Ltda. Initially mandated BBVA, Banco del Estado, Banco Santander, Bank of Nova Scotia, EDC, Mizuho, MUFG, and SMBC to lead the company’s US$1bn transaction.

The syndicate took a fairly conservative approach, opting for a wider syndication at the joint lead arranger tier, and fully underwrote the transaction, then opted to bring in other lenders once the terms of the transaction were finalised.

After receiving strong lender interest, attracting ABN Amro, CIBC, KfW, and DnB to participate with the transaction, the company was able to upsize the size of the facility to US$1.2bn, enabling some of the joint lead arrangers to pare back their original commitments.

The transaction secured final pricing of LIBOR+137.5bp, an impressive result given similar mid-‘B’ credits were securing loan facilities at roughly 15bp-20bp higher, and the depressed state of commodity prices, particularly copper, at the time of execution. It was also one of the largest unsecured corporate loan of its kind.

Overall, the company was able to obtain cost competitive financing – boosted to an extent by the quality of the project’s sponsors; extended its maturity profile; addressed key capital expenditure needs for 2016; and introduced several new financial institutions to Minera Escondida.

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