Tuesday 31 July 2018 by FIIG Research Trade opportunities

New FIIG originated bond - Zenith Energy Ltd

We are delighted to announce the latest new FIIG originated high yield bond from Zenith Energy, a market leader in the remote “off-grid” power generation industry. The issue seeks to raise $40m of secured and subordinated notes, paying a fixed rate coupon of 7.55%p.a. quarterly in arrears. The Notes partially amortise over the seven year term and are available to wholesale investors only in minimum $50,000 parcels

zenith

Established in 2006, Zenith Energy Limited (“Zenith”) is a Perth based listed (ASX:ZEN) independent  power producer (“IPP”), to remote clients operating in “off-grid” locations in Australia and Papua New Guinea. Zenith raised $25m on IPO in May 2017 and had a market cap of $102m as at 19 July 2018, up over 85% since listing. 

  • Zenith is a market leader and specialist in bespoke electricity solutions utilising diesel, gas, solar and hybrid generation, with 12 projects, consisting of over 400MW capacity currently under contract. Zenith has mainly “Take or Pay” arrangements providing downside protection under its Build Own Operate (“BOO”) power generation model, or a Manage, Operate & Maintain (“MOM”) service model. Zenith also provides Engineering, Procurement and Construction (“EPC”) project work as an additional source of revenue. 
  • Zenith’s major shareholders and management team are highly experienced and successful operators in the field having built more than 60 power stations for Zenith as well as in previous roles.
  • Zenith’s has consistent strong cash flow driven by a number of high credit quality Power Purchase Agreement (“PPA”) counterparties. It has a well diversified portfolio of projects across counterparty, mine contract and commodity. 
  • There is a stable market outlook for commodities that Zenith is indirectly exposed to (i.e. Gold, Nickel, Copper, oil and Natural gas) and Zenith endeavours to maintain a balanced portfolio over the longer term.
  • Strong and growing pipeline of both contract renewals and upcoming tendered work, with >380MW of installed capacity in new projects identified. Zenith is able to service its debts based on existing contracts with no reliance on future growth, although we note that Zenith’s track record in converting its pipeline is strong. Moreover, much of Zenith’s existing client base has the potential to expand production capacity which would lead to deploying more power assets. This is incremental in nature to the contracted base but supports low risk organic growth. 
  • Actual H1-18 EBITDA was $12.9m. Based on FIIG estimates FY18 EBITDA $17m which is expected to increase to $19m in FY19 and Net debt/EBITDA in FY18 1.7x increasing to 3.6x in FY19.
  • The Notes will amortise 75% ($30m) over the term and, based on FIIG forecasts, allowing for the senior debt to be fully drawn (up to the "2.0x" covenant), Debt/EBITDA will be c2.5x at maturity. 
  • The Notes will have a first ranking charge over the assets of the Issuer and the Parent, which is subject to an intercreditor deed (“ICD”) with the senior lenders. The terms of the ICD include a cap on senior up to a maximum of $85m and a 90 day stand still period upon a default before any enforcement action can be taken by Noteholders. To mitigate this risk, the Notes will have the benefit of a priority interest in the balance aligned to the quarterly Note principal amortisation and interest payment held in an identified reserve account (“Note Proceeds Account”) with proceeds available to satisfy any payment that falls due but that the Issuer is unable to pay whilst an event of default subsists.
  • The Notes benefit from a range of maintenance covenants monitoring quarterly performance, maintenance of the Note Proceeds Account and limiting amendments to the terms of the Senior Secured debt, total indebtedness, disposals and Distributions to Shareholders.

For more information, please call your local relationship manager

 

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