Oil Sector Financing through Securitization

Oil Sector Financing through Securitization

Learn about the goals and constraints of securitization, and how it can provide long-term financing for the oil sector. Discover oil securitization deals in Africa and experiences from around the world at the Africa Oil & Gas Trade and Finance Conference.

About Oil Sector Financing through Securitization

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Slide1Orrick PowerPointTemplate January 17, 2001 Name of Presenter Securitization and Oil Sector Financing Pascal K. Agboyibor Orrick, Herrington & Sutcliffe - Paris April 29, 2004 Marrakech, Morocco 8 th  Africa Oil & Gas Trade and Finance Conference NOT AN OFFICIAL UNCTAD RECORD

Slide22Agenda  Introduction  Goals of Securitization  Constraints of Securitization  A Receivables Securitization for Long Term Oil Financing  Oil Securitization deals in Africa  Oil Securitization experience in the world

Slide33Introduction  Traditional  Structured  Finance  Techniques  Export  Receivables  Prepayment  Export  Receivables  Backed  Lending  Implementation  of  Basle  II  will  lead  to  other  techniques including  securitization

Slide44Export Receivables Prepayment Local Oil Company Buyers SPV/Trader Sale of Crude Oil  (3) Bank prepayment  (2) receivables  (5) Loan  (1) Export of Crude Oil  (4)

Slide55Export Receivables Prepayment (legends) 1) The  Bank  will  grant  a  loan  to  the  SPV/Trader 2) Under  a  Prepayment  Agreement  the  SPV /Trader   will  use  the  Loan  to  make  payment  to  the  Local  Oil Company 3) Pursuant  to  the  Prepayment  Agreement  and  the  forward  sales  contract,  the  Oil  Company  will  sell  the Crude  oil  to  the  SPV /Trader 4) Under  Export  Sales  Agreements  of  Crude  Oil  the  SPV /Trader   will  sell  the  Crude  Oil  to  the  Buyers 5) The  SPV /Trader   will  transfer  to  the  Bank  the  receivables  generated  or  to  be  generated  by  the  export of  Crude  Oil

Slide66Export Receivables Prepayment Local Oil Company Buyers Sale of Crude Oil  (2) Bank Exports receivables  (3) Loan  (1)

Slide77Export Receivables Prepayment (legends) 1) The  Bank  will  make  a  Loan  to  the  Local  Oil  Company 2) Under  Export  Sales  Agreements  the  Local  Oil  Company  will  export  crude  oil  to  the  Buyers 3) The  Local  Oil  Company  will  transfer  to  the  Bank  the  export  receivables  generated  or  to  be  generated by  the  sale  of  Crude  Oil

Slide88Goals of Securitization  Reduce credit and/or prepayment risk  Source of relatively low-cost financing and/or liquidity  Diversification of investor base  Longer-term, revolving finance becomes possible  Obtain off-balance sheet financing

Slide99Constraints of Securitization  Due  to  high  level  fixed  costs  (investment  bank  structuring fees,  rating  agencies  fees)  volume  is  required.  Transaction amounts  are  often  over  USD  100  million  Legal  constraints  (true  sale  recognition,  bankruptcy  issues, opposability  against  buyers  creditors…)  Operational  and  financial  reporting

Slide1010A Receivables Securitization for Long Term Oil Financing  Securitization  enables  longer-term  and  revolving  finance  for commodity  trade  and  production  projects.   It  relies  on  future export  flows  of  oil  The  following  chart  and  related  footnotes  outline  flows  of funds  among  the  principal  parties  under  the  securitization transaction

Slide1111A Receivables Securitization for Long Term Oil Financing XXX  Buyers XXX Islands III Corp. (the « Issuer »)  Investors XXX Export Co. Prepayments  (5) Crude Oil  (6) Payments for Crude Oil sold by XXX Export Co.  (8) Payments of principal of and interest on the Notes   (9) Payments under the Originator Note  (10) Notes  (1) Proceeds of Notes  (2) Receivables  (4) Purchase Price of Receivables  (3) Crude Oil  (7) Collection Account

Slide1212A Receivables Securitization for Long Term Oil Financing  (Legends) 1) The  Issuer  will  issue  one  or  more  Series  of  Notes  to  investors 2) Net  proceeds  from  the  sale  of  the  Notes  are  paid  to  the  Issuer 3),4) The  proceeds  of  the  issuance  of  the  Notes  will  be  paid  to  XXX  Export  Co.  in  consideration  of  the purchase  of  rights  to  certain  receivables  generated  or  to  be  generated  by  the  sale  of  Crude  Oil  by  XXX Export  Co 5) Under  a  Prepayment  Agreement,  XXX  Export  Co.  will  use  the  net  proceeds  received  from  the  Issuer, together  with  other  funds  on  hand,  to  make  a  prepayment  to  XXX  in  consideration  of  XXX’s obligations  under  the  Prepayment  Agreement 6) Pursuant  to  the  Prepayment  Agreement  and  the  Master  Export  Contract,  XXX  will  agree  to  sell  to  XXX Export  Co.  the  required  quantities  of  Crude  Oil 7) XXX  Export  Co.  will  sell  Crude  Oil  to  the  Buyers 8) Each  of  the  Buyers  will  be  instructed,  and  certain  Buyers  will  agree  in  Notice  and  Consents,  to  make payment  for  Crude  Oil  to  the  Collection  Account 9),10)Proceeds  in  the  Collection  Account  will  be  used  to  pay,  among  other  things,  principal,  interest  and other  amounts  scheduled  or  otherwise   required  to  be  paid  in  respect  of  the  Notes,  fees  owed  to  the Trustee  and  the  Servicer,  and  amounts  due  in  respect  of  the  Originator  Note

Slide1313Securitization Potential by Region Securitization potential by region (based on 1998 data on exports and remittances) (billion dollars)   Fuels Minerals Remittances Total East Asia Europe and Central Asia Latin America and Caribbean Middle East and North Africa South Asia Sub-Saharan Africa Total for low- and     middle-income countries 5.3 9.8 7.5 16.5 0.1 ... 39.2 2.1 4.6 5.2 0.4 0.2 ... 12.6 0.1 0.7 1.3 1.0 1.4 0.2 4.8 7.5 15.1 14.0 17.9 1.7 0.2 56.4   Source: Authors' calculations using overcollateralization ratio of 5:1. Data on exports are from the World Bank's World Development Indicators, data on worker remittances from the IMF's  Balance of Payments Statistics Yearbook  (1999). Note: ... denotes data not available. Regions are as defined in the World Bank's annual publication  Global Development Finance .

Slide1414Oil Securitization deals in Africa  The  Mobil  Producing  Nigeria  securitization  (1996) Mobil  Producing  Nigeria  raised  US$  330  million  on  the  US capital  market Interest  rate  paid  on  this  7-8  year  loan  was  4  per  cent  lower than  what  Mobil  otherwise  could  have  expected  to  pay

Slide1515Oil Securitization Experience in the world  Pemex  Finance  Ltd.  Oil  Securitization  in  1998  (Mexico) Securitization  of  receivables  generated  from  petroleum products  sales  raising  $390  million  YPF  Oil  Securitization  (Argentina) Securitization  of  future  export  receivables  raising  $400  million  Petroleum  Company  of  Trinidad  and  Tobago  (Petrotrin) Securitization  of  receivables  generated  through  a  12  year forward  sale  of  refined  product  raising  $150  million  Kazakhstan  Halyk  Bank  raising  $100  million

Slide1616Contact Info Pascal Agboyibor Orrick 47, Rue de Monceau 75008 Paris ()33-1-5353-7500 pagboyibor@orrick.com