Proventus Capital Partners invests in funding structure for Preem Corral Petroleum
March 8, 2013
Proventus Capital Partners worked together with other stakeholders to secure a long-term financial platform for Preem Corral Petroleum. Corral Petroleum is the parent company of Preem, the largest Nordic refinery with substantial interest in distribution of oil and gasoline in Sweden. On an operational level, the company is very well maintained and has one of the most advanced and environmentally friendly refinery operations in Europe but the company has substantial financial debt, in 2009 debt levels amounted to around five times normal operating earnings.
Demand for gasoline and diesel is in a structural decline of about 1% per year, but in 2009-2011 cyclical factors caused a substantial shortfall in demand and as a consequence thin or non-existant margins for refineries all over Europe. For Preem, leverage at one point stood at 10x earnings.
At the same time, Corral Petroleum in 2010 faced a bond maturity amounting to roughly 1/3 of total financial debt in the group. Due to market conditions, and the substantial leverage in the company, markets believed that it would be impossible to refinance the bond and a restructuring or default was inevitable. The bonds were trading around 50% of par.
Proventus Capital Partners invested in the bond in 2009 and added to the investment both in 2010 and 2011. Our investment was based on the belief that bondholders would be able to get full repayment, even if market conditions warranted an extension of the 2010 bond.
The 2010 bond was renegotiated: partially repaid and extended until 2011 in a transaction where the ultimate owner of Corral injected some USD 500 mn in new funds. In 2011, all financial debt in Preem and Corral was again renegotiated in a new long term funding structure maturing in 2016 and 2017 where again the owner injected USD 600 mn. In total, bondholders received more than USD 500 mn in repayment during this period (≈50% of face value). No debt forgiveness was necessary.
Proventus was the only Nordic participant active in the bond holders committee in 2010 and 2011, and successfully supported a solution which gained support both from other bondholders, the owner and the banking syndicate which was structurally senior to the bond.
The equity injections were partly allocated to reducing financial leverage in the group to a more reasonable level, below four times normal operating earnings. Equally important, a substantial part of the new equity was reserved for investments in the business, which will add to Preem’s already strong competitive position and enable further investments in sustainable products such as diesel made from pine wood. The 2017 bond is currently trading close to par, a testimony to the fact that markets perceive the financial structure as being reasonable and that bondholders are expected to receive full repayment either at maturity or through a refinancing.