Trafigura Offers COVID-19 Premium
Commodities trader Trafigura Beheer has become the first company to offer a defined Covid premium on an Asian syndicated loan, paying up to an extra 20bp all-in on its latest US$1bn-equivalent financing.
The novel pricing structure is a first for Asia, if not globally, and could set a precedent for other price-sensitive borrowers looking to limit the long-term effects of the pandemic on their funding costs.
Without the Covid premiums, the terms of Trafigura’s new deal are little changed from loans it signed in 2018 and 2019.
“Trafigura is compensating lenders for their liquidity as a recognition of the difficult market environment that has resulted in increased costs of borrowing for everyone. However, it is also mindful that the additional compensation does not set a new pricing benchmark for its own borrowings,” said one senior loans banker in Hong Kong.
Standard Chartered Bank and Sumitomo Mitsui Banking Corp are the mandated lead arrangers and bookrunners of a US dollar-denominated facility, while Agricultural Bank of China and China Construction Bank are the active bookrunners of a renminbi tranche.
The financing comprises a 365-day US dollar revolving credit facility (tranche A), a one-year renminbi term loan (tranche B) and a three-year US dollar term loan (tranche C).
Tranches A and C pay interest margins of 65bp and 110bp over Libor, respectively, as well as a 10bp Covid-19 margin premium for both portions and fee premiums of 5bp and 30bp.
Excluding the premiums, the margins are similar to that on a US$1.505bn-equivalent loan Trafigura closed last September.
All participating lenders will receive the Covid-19 margin and fee premiums, regardless of their commitment levels.
Liquidity test
Frequent high-grade European borrowers are sensitive about their pricing benchmarks and Trafigura is no different, said the banker, emphasizing that the premium was a one-off compensation for lenders.
“The premium is not based on any pricing grid and does not fall away if Covid-19 has a resolution or if a vaccine is developed,” said the banker in Hong Kong.
Syndication will determine what lenders think of the attempt to draw liquidity with the Covid-19 premium. At least one lender is not participating.
“While the Covid-19 premium is an incentive for us to do the business, we are not actively looking at the deal as we are concerned about the market volatility in the energy sector due to the coronavirus pandemic,” said a senior banker from a Taiwanese bank.
Another banker in Singapore questioned the logic of tying pricing to Covid-19, given how governments worldwide are struggling to contain the disease.
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