RE: Vitol Charge created14 Sep 2021 22:15
I think given this is a bridge facility we will see a bigger financing package down the line. I expect this to include both equity and debt.
On the debt side we will take advantage of the fact there are hard infrastructure assets that can be financed at relatively high leverage multiples, with long term, low cost debt. Ie the gas plants and pipelines. This financing will take place at the asset level, ie at the opco that physically own those plant and pipeline assets. The hard security and physical proximity to those assets means that debt is attractive to insurance companies and infrastaructure funds who want low risk debt. If Savannah ever defaulted they just enforce the security and take the asset. So low risk.
The residual debt need will occur away from the assets and will as such be structurally subordinated to that infrastructure debt. The debt will still have security over the SHARES of the opco but NOT the actual assets themselves. As such they are essentially a second ranking lien/claim on the hard assets. Thus the cost of this corporate level debt is higher. Can be in form of bank loans, corporate bonds etc.
But as per above the way to think about it is almost a flow diagram with Savannah plc at the top and the entities that own the assets below. The PLC owns shares in the opcos and pledges those shares as security for any debt raised at the corporate level. But the lower risk, lower cost debt is in the boxes/subsidiaries at the bottom of the flow diagram as they physically own the assets and not just shares in subs that own the assets. They are structurally Senior to corporate level debt.
All to be revealed v soon. But I would put good money on a financing containing holdco corporate financing and opco financing of the Chad and Nigerian hard assets separately to achieve 2 important things: 1. maximise debt capacity, 2. reduce cost of debt.
Why is that good for us? More debt capacity = less need for equity = better equity returns.
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