SBM Offshore and Mitsubishi Corporation have raised US$850 million to refinance a floating production storage and offloading (FPSO) unit, which is deployed in the Brazilian Sapinhoa oil field and operated by Petrobras. The FPSO Cidade de Ilhabela is owned 75% by SBM Offshore and 25% by Mitsubishi Corp.

Netherlands-based SBM Offshore's main activities are the design, supply, installation, operation and life extension of FPSO units for the offshore energy industry. The company is very active in supplying FPSOs for offshore oil exploration in Brazil.

On February 9 SBM Offshore announced the pricing of US$850 million non-recourse senior secured notes in a 144A/Reg S offering by a subsidiary company. Bookrunners were Citigroup, Mitsubishi UFJ Financial Group, Mizuho Financial Group, and ING Bank. The company said that the deal was significantly oversubscribed.

The issuer of the notes is Guara Norte, which owns the FPSO Cidade de Ilhabela. It produces oil and gas on the Sapinhoa field in Brazil's Santos basin, and is under charter to state-controlled oil company Petrobras

The low-yield environment has led to strong global demand for below investment grade bonds, and owners of FPSOs on long-term charter contracts with Petrobras are increasingly refinancing bank debt in the bond market. This is SBM Offfshore’s first issuance of 144A/Reg S bonds, and further diversifies its sourcing for project debt.

The Guara Norte proceeds will be used to repay existing bank debt (approximately US$535 million, with a remaining tenor of approximately four years), unwind the existing hedge arrangements, and pay for transaction-related expenses (approximately US$35 million). The remaining cash (approximately US$280 million) will be distributed to Guara Norte’s shareholders.

The notes are rated Ba1 by Moody’s) and BB+ by Fitch, and were priced at 99.995% of par value with a 5.198% fixed coupon which is paid semi-annually. The notes are fully amortizing over the 13.5-year tenor. They will trade on the Singapore Stock Exchange.

Last August Japanese oil & gas production services specialist Modec issued US$1.1 billion worth of project bonds in the international capital markets outside Japan, to refinance an FPSO vessel chartered to the TUPI consortium led by Petrobras. Modec said at the time that the aim was to strategically diversify its financing sources.

This project bond was issued for the FPSO Cidade de Mangaratiba MV24, operated by Patrobras in the Iracema Sul pre-salt oil field. The shareholders of MV24 are Modec, Mitsui & Co, Mitsui O.S.K. Lines, and Marubeni Corporation.

Mizuho Securities USA, Morgan Stanley and SMBC Nikko Securities America acted as joint bookrunners, and Citigroup Global Market acted as lead manager of the offering.