Consent Solicitation and Exchange Discussion Materials November 18, 2016

Transcription

1 Consent Solicitation and Exchange Discussion Materials November 18, 2016 IFCo Aerial Site View, October 27, 2016

2 Important Information This presentation contains forward-looking statements. This presentation also includes speculative information that is dependent on the outcome of negotiations with parties other than the Iowa Fertilizer Company (IFCo) and OCI, which neither IFCo nor OCI can control. This presentation includes references to projections of IFCo, and such projections are based on many factors, including events outside of the control of IFCo and OCI, and actual results may materially differ from IFCo s and OCI s current expectations. Neither this presentation nor the accompanying Consent Solicitation Statement constitute an offering of securities. 2

3 Executive Summary OCI and bondholders have joint goal to complete construction and begin operations as quickly as possible Overall EPC Progress is 98.5% 1 complete, where project has largely shifted to the pre-commissioning and commissioning activities associated with startup OEC (the EPC Contractor) has reduced mechanics liens by approximately $135m since the end of August OCI remains strongly committed to the IFCo project and has offered to provide additional financial support to ensure the successful completion of construction and start-up of the project IFCo is expected to cost about $1.2b in excess of original estimates (see page 4) o OCI and OEC have borne these additional costs Subject to a successful consent process, OCI will cash fund, along with expected revenues and changes related to the consents, remaining expected costs required to reach commercial operations and support revenue shortfalls for senior interest prior to Provisional Acceptance 2 OCI is seeking bondholder support to approve, among other things, the settlement with OEC and reduce upcoming debt service to ensure the successful completion of construction and first year of operations 3 OEC will settle claims and be responsible for reduced delay damages Extend 2016 and 2017 sinking fund payments to allow the project to ramp up to full operations, fund the various operating reserves and cover debt service in Consenting holders will be paid a consent fee of 0.375% 1 Includes completion of pre-commissioning and commissioning activities, as of September 30, Incentive payments to OEC under Settlement Agreement will not be cash funded, as OEC s sole recourse for incentive payments is to OCI 3 Note that if the consents are not obtained, OCI intends to fund 12/1/16 debt service and further development costs through Provisional Acceptance. 4 Reduces 2017 debt service by ~$94 million and improves 2017 senior debt coverage from 1.1x to 2.7x 3

4 Significant Additional Capital Committed by OCI and the EPC Contractor Cost Overruns Funded by OCI (In USD millions) 1,400 1,200 1, OCI Original Equity Original Equity Funded Committed Overrun Q OCI Indemnity to OEC EPC Settlement Agreement Additional OCI Funding 65 OCI Guarantee Total OCI Funding Additional funding commitments of $687m borne by OCI NV OCI s contractual obligation to bondholders Cost Overruns Absorbed by OEC OEC reported a pretax loss from its US operations in FY 2015 of $616 million, caused primarily by one-off loss at Iowa Fertilizer Company 1 To complete construction, OCI and OEC will have funded about $1.2bn in excess of what was expected at 2013 construction commencement 1 See Orascom Construction Limited 2015 Financials, note 25 and Orascom Construction Limited 2015 Results Presentation page 3. 4

5 Consent Solicitation Summary Proposed Support: OCI funding/commitments, along with expected revenues and changes related to the consents, remaining costs to: o Complete construction, fund bond debt service through 6/1/17 and start up costs (cash funded) o Provide $12m contingency to IFCo, available to pay, among other things, 6/1/17 debt service (OCI commitment) o Settle all outstanding claims with OEC, reschedule delay damages and provide OEC with an incentive payment (OEC s sole remedy for such payment is against OCI) o Provide a letter of credit ( SBLC ) to replace the cash being drawn from the Debt Service Reserve Fund ( DSR ) o Provide OCI guarantees (a) additional contingent $64.5m to support revenue shortfalls for senior interest prior to Provisional Acceptance and (b) $30m to support mechanics liens claims Proposed Consents: Improving IFCo financial position to finish construction and pay debt service o Amend Additional Senior Obligations test to permit the refinancing of the 2016 and 2017 sinking fund payments o Allow $21m DSR draw to pay 12/1/17 debt service and permit $82m initially and up to $60m permanently of the DSR to be funded by a SBLC o Amend allowable Working Capital Loans to increase cap from $30 to $50 million and include inventory as collateral Enabling OEC/IFCo to complete the project o Allow for Settlement and Acceleration Agreement ( Settlement Agreement ) and EPC Contract Amendment ( EPC Amendment ) to be executed by IFCo o Waive any potential default that could be construed to exist related to delays in the construction, implementation of the Settlement Agreement and the EPC Amendment and mechanics liens Allowing sale of project to creditworthy sponsor to facilitate potential M&A transactions o Amend the change of control default to permit the immediate parent of the Company to be sold to anyone that has experience in the fertilizer or petrochemical industry and is investment-grade rated or has a net worth of at least $4 billion 5

6 Construction Budget Summary of Costs (in USD millions) From May 16 From Nov 16 to Nov 16 to Jun 17 Discussion EPC Contract Milestones 7 28 EPC Change Orders Agreed in the Settlement Agreement EPC Settlement Agreement $170m advanced to OEC to date Non-EPC Development Costs Debt Service Includes NBAD and MLCI Deferred Hedge and assumes extension of principal due in 12/1/16 and 6/1/17, reducing debt service by $95m between Nov 16 to Jun 17 Consent Fee & Exchange Premium bps consent fee and 300 bps exchange premium Total IFCo Costs Sources of Funds IFCo Cash Balance 19 0 DSRF Draw $60m draw replaced by SBLC on 6/1/16, $21m draw on remaining DSR cash to be replaced by SBLC on 12/1/16 OCI Funding for Project Costs OCI cash funds $65m by effective date of consent OCI-Backed Funding for EPC Settlement OCI commits to fund these costs on an ongoing basis, with OEC s sole recourse for non-payment being to OCI; OCI-Backed Contingency for IFCo 0 12 OCI commits to fund IFCo contingency as needed OCI-Backed Support for Interest 32 OCI commits to fund up to $64.5m to support revenue shortfalls for senior interest prior to Provisional Acceptance; only 6/1/17 support shown Production Income and Forward Sales Ammonia production on 12/1/16, downstream production on 1/15/17; fertilizer and gas prices from Integer and NYMEX HH forwards Existing Sources of Funds Expected Surplus (Shortfall) 0 68 $497m of OCI commitments (includes $410m of original commitment (from May consent) + $22m SBLC + $64.5m guarantee for interest) $303m was funded by end of Oct 2016 (including $60m DSR SBLC on 6/1/16) and $87m (including $22m DSR SBLC on) will be funded upon successful consent process 6

7 Monthly Construction Budget (in USD MM) May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Summary of Costs EPC Milestones Payments Pre-Agreed EPC Change Orders EPC Settlement Agreement Non-EPC Costs Debt Service on the Series 2013 Bonds Financing Costs - Other Total IFCo Costs Sources of Funds Company Cash DSRF Draw (OCI-SBLC Backing) OCI Funding for Project Costs OCI Funding for EPC Settlement Projected Product Revenues Existing Sources of Funds End of Month Cash Key assumptions Amounts shown do not include use of the $12m OCI contingency or $64.5m OCI support of 6/1/17 and 12/1/17 senior debt interest Ammonia production on Dec 1, 2016, Downstream production on Jan 15, 2017 Fertilizer prices are based on Integer forecasted prices from Oct 2016 Natural Gas prices based on Bloomberg NYMEX Henry Hub forward estimates from Nov 17, 2016 Assumes extension of principal in Dec-16 and Jun-17 reducing debt service by $95m during this period 7

8 Robust Long Term Forecast; Lower Fertilizer Prices Offset by Lower Natural Gas Prices Metric Base Case EBITDA Projection Summary output Ammonia Net Volume Sold k st Realized Price Per Short Ton $/st Urea Volume Sold k st Realized Price Per Short Ton $/st UAN Volume Sold k st 1,300 1,413 1,413 1,254 1,372 1,372 1,372 1,254 1,372 1,372 1,372 Realized Price Per Short Ton $/st DEF volume sold k st Realized Price Per Short Ton $/st Gas Cost $m Henry Hub Gas Price $/mmbtu Net revenue $m EBITDA $m No Principal Extension Income Avail. for Debt Service (A) $m Total Senior Debt Service (B) $m Debt Service Coverage Ratio (A/B) $m 1.2x 1.6x 1.6x 1.8x 2.5x 2.9x 3.2x 3.3x 4.1x 0.0x 0.0x With Principal Extension Income Avail. for Debt Service (A) $m Total Senior Debt Service (B) $m Debt Service Coverage Ratio (A/B) $m 2.7x 1.5x 1.6x 1.7x 2.4x 2.8x 3.1x 3.1x 3.9x 8.6x 8.1x (1) Assumes base case production (December startup for ammonia) (2) Uses Integer forecasted fertilizer pricing from Oct 2016 and NYMEX Henry Hub forecasts from Nov 17, 2016 (3) Case with principal extension assumes new 2026 and 2027 maturities carry a 5.875% interest rate (4) Senior debt service does not include deferred hedge payments 8

9 Consent Solicitation Requests Request 1. Consent to the Settlement Agreement and EPC Amendment 2. Consent to the First Amendment to the Bond Financing Agreement Discussion Settles all outstanding OEC claims (currently $416 million and 264 days of time relief), other than pre-agreed change orders (which are part of the budget and to be cash funded by OCI) IFCo pays OEC $200 million in incentive payments that will be funded by OCI through the making of a subordinate loan to IFCo ($170 million of which has already been advanced by OCI to OEC) OEC s sole recourse if the final $30m incentive payment is not made is against OCI Enable IFCo and, by collateral assignment, the Collateral Agent to draw on OEC s $60m SBLC and OCI s $30m guarantee in order to remove undischarged mechanics liens on the earliest of (i) imminent transfer of the Project site pursuant to foreclosure proceedings by a mechanics lienholder or (ii) initiation of foreclosure proceedings by the Collateral Agent Incentive payment is tied to achieving Provisional Acceptance and elimination of all mechanics liens (see page 12) Delay damages are rescheduled and capped at $30 million (see page 11) Amends Additional Senior Obligations test to permit IFCo to refund the 12/1/16, 6/1/17 and 12/1/17 sinking fund installments to mature after 12/1/25 Amends the change in control default to permit the immediate parent of IFCo to be sold to any entity that has experience managing fertilizer or petrochemical facilities and is investment grade rated by at least one rating agency or has a net worth of at least $4b Makes loan for incentive payment (see #1) Excluded Collateral to assure OEC that these funds are available solely for payment to OEC 9

10 Consent Solicitation Requests (continued) Request 3. Waivers related to Construction Delays and Cost Overruns 4. Waivers related to EPC Amendment and Settlement Agreement Discussion Waives any potential past default that could be construed to exist due to construction delays and cost overruns prior to effective date of consents Allows IFCo to proceed with the EPC Amendment and Settlement Agreement and complete construction without the risk of a breach under the Financing Documents Waives any past breach caused by execution of the EPC Amendment and Settlement Agreement Allows IFCo to proceed with the EPC Amendment and Settlement Agreement and complete construction without the risk of a breach under the Financing Documents 5. Amend DSR Requirement 6. Waiver of Indenture Notice Period 7. Amends allowable working capital Permits an increase in JPM SBLC by $22 million in exchange for release of a like amount of cash in the DSR to pay debt service due on 12/1/2016 Going forward, permit $60 million of the DSR to be permanently funded by an A rated SBLC in lieu of cash ($22 million of cash flow after debt service must be first used to replenish the DSR) Waives the 60 day notice period required for amendments to the Bond Financing Agreement Allows the amendment to the Bond Financing Agreement to take effect upon the effectiveness of the Consent Solicitation Allows working capital loans to be secured by inventory, in addition to receivables Increases allowable working capital loans to $50 million from $30 million 8. Hedging Clarifies that the required credit rating of Natural Gas Hedge Providers only applies at the time of execution of Natural Gas Hedges and not as a maintenance obligation to maintain their second lien security interest 10

11 Agreements with EPC Contractor OEC will settle outstanding claims and provide funded path to construction completion and elimination of mechanics liens, with new delay damage provisions Settles outstanding claims as of consents effective date ($416 million and 264 days of time relief as of 10/14/16) Establishes new delay damage regime: After 12/31/16, $100,000/day until 500 metric tons of ammonia are produced, with 45 day grace period After 4/15/17, $150,000/day until Provisional Acceptance of entire project is achieved, with 45 day grace period $30 million cap on delay damages Ties $30 million incentive payment to Provisional Acceptance and elimination of mechanics liens Note that OEC has removed approximately $140 m of liens, including the RW lien, which was the largest outstanding lien (see page 12) Non payment of incentive payment by OCI is not a default under the Settlement Agreement or EPC Amendment, rather OEC s sole recourse is to OCI 11

12 Sizeable Mechanics Lien Reduction to Date Outstanding lien balance has been reduced by $140m since August 1, 2016 OEC successfully resolved the RW claim, allowing for the removal of $119m lien and dismissal of RW s petition to foreclose Of remaining lien balance, 81% relates to MEI and its subcontractors who are in dispute with OEC since dismissal in December 2015 Arbitration/mediation underway with MEI OEC is making progress on other subcontractor liens, reducing the balance by ~$20m since August 2016 OEC on path to clear liens by Provisional Acceptance Bondholders are senior to mechanics liens under Iowa law Summary of Outstanding Lien and Reduction Since August 2016 (in USD MM) 1-Aug-16 Δ Since 18-Nov-16 Balance 1-Aug Balance % of Total Lien Placed by RW 119 (119) 0 0% Liens Placed by MEI and MEI subcontractor Liens Placed by Other Subcontractors % 38 (21) 17 19% Total Liens Outstanding 229 (140) 89 IFCo Bondholders protected against residual liens Current balance (<3% of IFCo Replacement Cost) Excluding MEI, only $17m of exposure (<1% of IFCo) Nearly 60% reduction in lien balance driven by RW settlement, with no impact on IFCo and bondholders 12

13 Tender and Exchange of 2019 Term Bonds for New Bonds Maturing in 2026 and 2027 IFCo will tender for and purchase a portion of the 2019 Term Bond equal to the sinking fund payments due in 12/1/16, 6/1/17 and 12/1/17 The purchase price will be at a 3% premium o The par portion of the purchase price will be satisfied by the same holder receiving a 2016 Bond maturing in 2026 or 2027 of a like principal amount o The premium portion of the purchase price will be paid by OCI on behalf of IFCo An issue of additional bonds (the 2016 Bonds ) will be issued to IFCo, who will exchange them with holders of 2019 Term Bonds tendering their bonds IFCo will then deliver those purchased 2019 Term Bonds to the Trustee and direct the Trustee to cancel the 2019 Term Bonds and credit an equivalent principal amount to the sinking fund payments which would otherwise have been due on 12/1/16, 6/1/17 and 12/1/17 Value of remaining 2019 bonds will improve, with the elimination of the low to negative-yielding 12/1/16, 6/1/17 and 12/1/17 sinking funds 13

14 Terms of 2016 Bonds Term Bonds Tendered $147,195,000 of the 2019 term bond (which equals the sinking fund payments due 12/1/16, 6/1/17 and 12/1/17) Purchase Price for Tendered 2019 Term Bonds 103%, par portion of purchase price satisfied by receipt of 2016 Bond of same par amount and premium portion paid with cash provided by OCI 2016 Bonds Purchased $48,550,000 term bond due Dec. 1, 2026 $98,645,000 term bond due Dec. 1, 2027 Coupon/Yield 5.875% range at par 5.875% range at par Sinking Funds 6/1/ ,000,000 12/1/ ,550,000 6/1/ ,800,000 12/1/ /1/ ,050,000 12/1/ ,795,000 Average Life 9.89 years years Optional Call Make-whole call to first call date at MMD + 30 bps prior to 6/1/18; 105% call 6/1/2018 to 11/30/ % call 12/1/2019 to 11/30/ % call 12/1/2020 to 11/30/ % call 12/1/2021 to 11/30/ % call 12/1/2022 to 11/30/2023 Par call on and after 12/1/2023 Security Senior bonds, on parity with the Series 2013 Bonds Make-whole call to first call date at MMD + 30 bps prior to 6/1/19; 105% call 6/1/2019 to 11/30/ % call 12/1/2019 to 11/30/ % call 12/1/2020 to 11/30/ % call 12/1/2021 to 11/30/ % call 12/1/2022 to 11/30/2023 Par call on and after 12/1/2023 Senior bonds, on parity with the Series 2013 Bonds Tax Status Non-AMT, tax-exempt Non-AMT, tax-exempt 1 Preliminary, subject to change 14

15 Exchange Disclosure Participating investors will need to execute a big boy letter IFCo will make a 10(b)(5) representation to investors and the only additional new contemplated disclosure is with respect to an ongoing IRS examination The IRS is examining the 2012 and 2013 IFCo bonds relating to: o Manner in which the proceeds of the 2012 Bonds were restricted for an initial period of several months prior to expenditure for construction of the IFCo facility o Whether the proceeds of the 2012 Bonds prior to expenditure served as security for the payment of debt service on the 2012 Bonds o The refunding of the 2012 Bonds by the 2013 Bonds IRS has not proposed or made any preliminary or other adverse determination The disclosure of the investigation is solely being made in connection with the exchange IRS concerns have not been the basis for any known adverse determination by the IRS with respect to other transactions where such elements arose Based on advice of counsel, IFCo believes that the IRS examination should close with no change to the tax exempt status of the 2012 Bonds and the 2013 Bonds Bond counsel continues to believe that its prior opinions that interest on the IFCo bonds is tax-exempt were correct when delivered As a condition to the exchange, Bond Counsel will deliver an opinion that interest on the 2016 Bonds is tax-exempt IFCo has agreed to protect bondholders in the event of an adverse tax determination Bondholders can put their bonds at 108% of par to IFCo if IRS determines that the bonds are taxable IFCo will pay a 50% step up in interest rate six months after the IRS issues a notice of proposed adverse determination letter 15

16 Timeline 1 Timing November 21: Initiate consent process via EMMA posting November 23: Consents Due November 23: Price 2016 Bonds (those maturing in 2026 and 2027) November 25: Close 2016 Bonds; consents effective Effectiveness Dealer-Manager Information and Tabulation Agent Effectiveness of the proposed consents and waivers upon: Receipt of the consent of a majority of principal of the bonds; and Execution of the EPC Amendment and Settlement and Acceleration Agreement by IFCo and OEC; and Execution of all financing documents needed to effect consents and exchange; and Cash funding of remaining costs; and Tender and exchange of 2019 Term Bonds for new bonds maturing in 2026 and 2027; and Various consents will be required from the construction lender, National Bank of Abu Dhabi, and hedge provider, Merrill Lynch Commodities Inc. Citigroup Global Markets Inc. Globic Advisors 1 Preliminary, subject to change 16