May 14, 2011

BUMA secures US$800 mio loan

Indonesia's second largest coal mining contractor PT Bukit Makmur Mandiri Utama (BUMA), a wholly owned subsidiary of PT Delta Dunia Makmur Tbk (DOID) finally secured a US$800 million syndicated loan facilities from 10 banks acting as mandated lead arrangers.
The 7-year facility is charged with an annual interest rate of Libor+375/400 basis points. The 2011 Facility was over subscribed, with BUMA receiving a total of US$1.25 billion in bank commitments.
The key benefits of the 2011 Facility are improved near term cash flow, flexible covenant structure, and reduced interest expense.
The 2011 facility has two parts, a US$ 750 million 7-year term loan to refinance all existing bank debt, pay related fees and provide additional cash for future capital expenditures, and a US$50 million 3-year committed revolving facility to add flexibility to BUMA’s capital structure.
The mandated lead arrangers are PT Bank Mandiri (Persero) Tbk, PT Bank Mizuho Indonesia, The Bank of Tokyo-Mitsubishi UFJ, Ltd, CIMB Bank, Credit Agricole Corporate and Investment Bank, The Hong Kong and Shanghai Banking Corporation Limited, ING Bank N.V., Intesa Sanpaolo S.p.A. Hong Kong Branch, Morgan Stanley, and Sumitomo Mitsui Banking Corporation.

Here is summary of US$750 million facilty and US$600 million facility.

US$750 million facility (2011):
Tenor: 7 years (matures in March 2018)
Mandatory prepayment via cash sweep: No
average life: 5 years
Margin: 3 months Libor+375/400 basis points
Debt/EBITDA covenant: Starts at 4x
Free cash flow covenant: No

US$600 million facility (2010)
Tenor: 5 years
Mandatory prepayment via cash sweep: Yes
average life: 2.6 years (with cash sweep)
Margin: 3 months Libor+475/490 basis points
Debt/EBITDA covenant: Starts at 3.5x
Free cash flow covenant: Yes

BUMA entered into US$500 million of plain vanilla interest rate swaps with an international counterparty, which is Morgan Stanley.  The full notional amount of the swap will be outstanding for 5 years, with no amortization.
Management believes that mitigating interest rate risk, and locking in favorable term rates, is an important risk policy decision.
BUMA’s implied interest expense is approximately 6.35% fixed for the next 5 years on the notional US$500 million swapped amount.  This rate is computed as the sum of the margin payable on the term loan portion of the 2011 Facility, the fixed payments under the IRS and all applicable withholding taxes.
This is encouraging progress from the approximately 14.7% fixed cost (with applicable withholding taxes) that BUMA was paying for its US$ 315 million senior notes due in 2014, which were fully redeemed in January 2011 through a tender offer, consent solicitation and subsequent tax call.

Disclosure: No position at the stock mentioned above.  

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