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Inside Out: Grupa Lotos Refinancing

Inside Out: Grupa Lotos Refinancing

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The Deal: In July, CEE Legal Matters reported that Norton Rose Fulbright had advised Grupa Lotos SA on the USD 500 million refinancing of loan facilities contracted by the company in connection with its “Program 10+” financing. Clifford Chance advised a consortium of domestic and international banks including Bank Polska Kasa Opieki S.A., Caixabank S.A., Erste Group Bank AG, Industrial and Commercial Bank of China (Europe) S.A., ING Bank Slaski S.A., Intesa Sanpaolo S.p.A, Powszechna Kasa Oszczednosci Bank Polski S.A., and Sumitomo Mitsui Banking Corporation Bank EU AG on the deal, with Credit Agricole, CIB, and BNP Paribas SA serving as agents.

The Players

Counsel for Grupa Lotos SA: Grzegorz Dyczkowski, Partner, Norton Rose Fulbright

Counsel for the banks: Andrzej Stosio, Partner, and Maksymilian Jarzabek, Advocate, Clifford Chance

CEELM: Grzegorz, how did you and Norton Rose Fulbright become involved with Grupa Lotos on this matter? Why and when were you selected as external counsel initially? 

Grzegorz: Norton Rose Fulbright was selected in a procurement process. Grupa Lotos used its Internet procurement platform, which they use to instruct advisers on important legal work, for this purpose. The criteria for selection were the experience of the bidders and the price offered. We worked for Grupa Lotos in the past, but not recently, and we had the required expertise, so we seized the opportunity to work for them again. We submitted our offer at the end of February 2019 and were selected as the legal advisors to Grupa Lotos in the middle of March 2019.

CEELM: Andrzej, what about you? How did you and Clifford become involved in this deal? 

Andrzej: The bidding process for a transaction of such a scale, especially if it involves one of Poland’s strategic companies, is usually more demanding than any other. We have had a good working relationship with Grupa Lotos, which we established while working on a number of projects in the past. We were fortunate to be one of the firms that received a request from Grupa Lotos for a proposal when the process of choosing the legal counsels for both sides began around the middle of the first quarter of 2019. Historically we have usually acted on the lenders’ side and therefore we expected to be perceived as a natural legal adviser to the banks. Needless to say, we were really glad to hear that we were chosen for this transaction in late March of 2019.

Maksymilian: A client’s decision to hire a legal adviser is always the result of a mixture of different factors. In this case we believe that our track record in advising both borrowers and lenders on a broad range of complex and demanding financings on the Polish market as well as our knowledge of Grupa Lotos’ business distinguished us from our competitors.

CEELM: What was the initial mandate when you were each retained for this project, at the very beginning?

Grzegorz: The initial mandate was to advise Grupa Lotos on the refinancing of the facilities extended by the banks a number of years ago to finance their P10+ investment project – an investment programme concluded in 2011 relating to the expansion of Grupa Lotos’s processing capacities from 6 million to 10.5 million tonnes a year. The key installations of the 10+ Programme were the hydrocracking (MHC) and solvent deasphalting (ROSE) units. The financing for the P10+ project was structured in a semi-project finance formula, which was no longer necessary, so the company decided to refinance the P10+ financing using a less complex unsecured syndicated loan structure.

Andrzej: The mandate covered negotiations of the term sheet and the finance documents, including the facility agreement, as well as issuing a standard legal opinion regarding the documentation in favor of the lenders. There were a few uncertainties in terms of the governing law and split of duties between the lenders’ and borrower’s counsel at the initial stage of the deal, but Grupa Lotos informed us about all of the potential scenarios so that our offer would accommodate each of them. In general, the management of information on the side of Grupa Lotos was very good during the whole transaction.

CEELM: Who were the members of your teams, and what were their individual responsibilities?

Grzegorz: I, Senior Associate Marta Kawecka, and Associate Igor Kondratowicz were the main members of the Norton Rose Fulbright team in Warsaw. I supervised the legal team and participated in most important meetings and conference calls.

Maksymilian: The Clifford Chance team was led by Andrzej, who is a partner and co-head of the Banking & Finance Department in the firm’s Warsaw office. The day-to-day work on the transaction was managed by me – this included drafting documents and keeping in touch with our clients’ and the borrower’s counsel and ING as the coordinating bank. Andrzej and I were the key team members responsible for working out the lenders’ common position, negotiating with Grupa Lotos and Norton Rose Fulbright, and making sure the transaction was going in the direction our clients wanted it to go. We also felt continued support from another partner, the co-head of our Banking & Finance Department, Grzegorz Namiotkiewicz, whose experience gave us invaluable insight a number of times in the process, especially at the term sheet stage. In the final stretch of the transaction we were also supported by Associate Wojciech Wator, who did a great job leading the process of satisfying the conditions precedent to utilization of the loan, ensuring the closing was reached seamlessly.

CEELM: Please describe the final agreements with all parties in as much detail as possible.

Grzegorz: The financing arrangements were designed as unsecured, corporate financing. As the P10+ investment project has reached the operational phase, Grupa Lotos decided to refinance its semi-project finance indebtedness by borrowing against its strong and stable balance sheet.

We were consulted by the company at the term sheet stage and shared our experience in structuring similar transactions for strong, profitable borrowers. We also held the pen on all finance documents to make sure they reflect the best market practice and our best drafting skills. The facility agreement was generally based on the LMA-recommended form for investment grade facilities, updated to reflect Polish law and market practice as well as the commercial arrangements specific to this transaction.

Andrzej: The financing was structured on an unsecured basis and the agreement followed the recommended LMA investment grade standard. Based on the profile of the borrower and the purpose of the financing, the parties decided this was the most appropriate way to proceed. These parameters were pretty much known from day one and were established even before we were appointed as the legal adviser to the lenders. Once the process commenced, it was crucial for the lenders to agree how to approach the general corporate and business structure of Grupa Lotos from the credit risk perspective, considering the characteristics and profile of the downstream and upstream arms of Grupa Lotos’ business.

CEELM: What’s the current status of the deal?

Grzegorz: The credit facility has been disbursed and the refinanced P10+ facility has been repaid from this disbursement and the company’s own funds. This is the operational phase of the transaction – the borrower pays the interest and the lenders are counting time to the facility maturity. We believe the facility is being smoothly administered thanks to the lenders’ experience and commitment.

Maksymilian: We successfully closed the transaction in early July 2019, which was in accordance with our clients’ and Grupa Lotos’ expectations.

CEELM: What was the most challenging or frustrating part of the process?

Grzegorz: I guess the most challenging part of the process was to agree on the repayment of the existing P10+ loan. The negotiations over the so-called “pay-off letter” took quite a long time to close and they involved a number of parties. This part of the process took a longer time than we expected, mainly because we had to accommodate the interests of yet another group of the banks – the current lenders.

Andrzej: We do not believe that there was anything particularly frustrating about this process, really. Just the opposite – the whole transaction was conducted in an atmosphere of fair play and comradery, which helped to overcome any potentially difficult moments. This would not have been possible without the open and accommodating approach demonstrated by all the parties involved as well as their advisers.

Maksymilian: Looking back, I think the challenging bit for everyone was to make sure the financial close occurred on a particular date, in order to finally refinance the 10+ Programme. Fortunately, as everyone was well aware of the timing, we were able to structure the work in a way which ensured a timely closing.

As for the commercial points, it was quite tricky to address the potential merger of Grupa Lotos with PKN Orlen and to foresee how it would impact the required documentation. In the end, we believe we found a solution which was the most appropriate in the circumstances.

CEELM: Was there any part of the process that was unusually or unexpectedly smooth/easy?

Grzegorz: I think the smoothest part of the transaction were the negotiations between Grupa Lotos and the new lenders. The banks and the borrower had been discussing the term sheet for a quite long time before we came to the documentation phase, so the parties reached agreements on various commercial and business matters relatively quickly. Also, we need to appreciate the commitment and professionality of the company’s business and legal teams, which we perceive as a huge asset at the negotiations stage.

Maksymilian: We feel that the entire transaction went quite smoothly, really. During the negotiations we tried to pinpoint the key issues and focus the discussions on them – together with our clients and counterparts, we felt like we did a good job in this respect.

One stage of a transaction which can sometimes become a bit cumbersome and slow down the momentum of the deal is the CP-satisfaction process, especially when there are many parties involved. In this particular transaction, however, the CP process was really easy and well-managed. We believe this is thanks to several factors, the first being the discipline imposed by the banks in order to verify all the necessary documents using one of our new transaction management tools, called Workshare Transact. It is particularly useful in deals like this one, where many parties have to look at, and provide feedback on, many different documents in a very short period of time.

CEELM: Did the final result match your initial mandate, or did it change/transform somehow from what was initially anticipated?

Grzegorz: The final result generally matched the initial instruction, because Grupa Lotos requested a quote from the invited law firms which would cover various options which were at the time still subject to the term sheet discussions (e.g., English or Polish law as the governing law of the loan facility – eventually Polish law was selected).

Andrzej: We know from experience that deals can sometimes get out of hand and require much more work than everyone assumed at the start. This was not the case in this transaction - in our opinion the final result matched our initial mandate almost completely. This only confirms that the process was planned very well from the outset, both by Grupa Lotos and the coordinating banks, and that all the parties executed the plan perfectly and worked collectively towards a common goal throughout the deal.

CEELM: What specific individuals at Grupa Lotos directed you, Grzegorz, and how did you interact with them?

Grzegorz: We received instructions from the head of the Finance Management Office, Filip Matulewicz, and from coordinators Tomasz Bajerski and Bartosz Pietras, as well as from Financial Director Przemyslaw Krysicki, who supported them. They form a very knowledgeable and capable team and one of the best client teams to interact with.

CEELM: What about you, Andrzej? Which individuals at which banks directed you?

Andrzej: Our main points of contact at the beginning of the process were Robert Dabrowski and Przemyslaw Staranowicz of ING Bank Slaski S.A., which performed the role of coordinator and documentation bank. Robert is the head of the energy sector at ING and Przemek is a sector managing director in the Wholesale Banking department at ING. They are both well-known in the Polish market for their professionalism and goal-oriented attitude. At the term sheet stage we had a few calls and meetings only with ING, Grupa Lotos, and the Norton Rose Fulbright team, and they were joined by the rest of the banks at the documentation stage. 

Maksymilian: As the transaction unfolded, and especially towards its end, the focus and workload on the lenders’ side naturally shifted towards the institution appointed as the agent, Bank Pekao S.A., with the experienced structured finance specialists Lukasz Radkowski and MichaL Kubik leading the way. Lukasz is a director in that department and Michal is a transaction manager. Having demonstrated a very constructive approach from day one, they were both extremely helpful and, with the support of the agency desk led by Bogdan Danowski (team leader and manager in Bank Pekao’s agency team), did a great job of managing the disbursement.

As the lenders’ club consisted of six more institutions – Caixa, Erste, ICBC, Intesa Sanpaolo, PKO BP, and SMBC – it would be unfair not to mention them here. We truly felt that each of them played a vital role in bringing this transaction to a successful close.

CEELM: Grzegorz, how would you describe the working relationship with Clifford Chance on the deal?

Grzegorz: Clifford Chance has a very strong and professional banking team. We know each other very well as some of the CC team members used to work at NRF, and hence our working relationship can only be described as very positive and effective. The legal discussions were mainly held over the phone or email, while the commercial points were discussed and resolved at a single meeting in Warsaw and a single all-parties call.

CEELM: How about you, Andrzej and Maksymilian? From your end, how was your working relationship with the Norton Rose Fulbright team?

Andrzej: We think the relationship worked really well for us, and, most importantly, for the clients. We always knew that Norton Rose Fulbright was a team of commercially-minded professionals who know the market very well and this proved to be the case this time around as well. Grzegorz Dyczkowski, Marta Kawecka, and Igor Kondratowicz, who were the key lawyers on Norton Rose Fulbright’s side, led the transaction in a very efficient manner. There were a couple of negotiation meetings with all the parties in Warsaw, followed by a few shorter calls. The conference calls were mainly used as a forum for discussion on the key takeaway negotiation points, which the parties needed to digest and confirm internally after the physical meetings.

Maksymilian: We also tried, as much as we could, to take the so-called legal points off the table and discuss them among lawyers only, so that our clients could concentrate on the strictly commercial aspects. Speaking more generally, to both of our teams (NRF and CC), it was crystal clear from the very beginning what our task was and, once we established that we actually had a common goal, we made sure to work towards it as best we could, in our clients’ best interest. Obviously, there were difficult points which caused some lengthy discussions, but, that being said, we always felt that the prevailing atmosphere was that of fair play and honesty. That was especially true towards the end of the transaction when we were able to reach an agreement quickly on a few sensitive points.

CEELM: How would you describe the significance of the deal?

Grzegorz: I think this deal will be a benchmark for a number of new transactions in Poland and in the CEE region. The lenders and the borrowers alike will be looking at the Grupa Lotos financing as the benchmark for the structure, covenants, governing law, and pricing for their new deals in the region.

Andrzej: In our view, the transaction was important for the market for a number of reasons. The most significant ones were the size of the ticket and the identity of the borrower, which is one of Poland’s strategic oil & gas companies. The USD 500 million facility amounts to nearly PLN 2 billion, which is a substantial sum on our market. It could also be argued that this refinancing could be perceived as a final seal for the 10+ Programme, which was a Grupa Lotos strategic development plan implemented in the late 2000s and successfully completed in the early 2010s. We feel proud to have been able to support the lenders in such a great endeavor and we look forward to more of the same.

This Article was originally published in Issue 6.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.