Delek Group’s proposed deed of trust approved by debenture holders

By Sarah Lizee

Olympia, Wash., June 18 – Israel’s Delek Group announced that the meeting of debenture holders of all seven series of its debentures approved the deed of trust, which had been formulated over recent months between the company and representatives of its debenture holders.

With the approval of the plan, the standstill agreement with the lender banks of the group, which was signed earlier this week, has also become effective.

According to the standstill agreement, the company is expected to make early repayment to the lender banks of the balance of credit provided to the group and to Delek Energy, and for release of the participation units of Delek Drilling that had been pledged as security for these facilities.

In line with the provisions of the deed of trust, 40% of the participation units will be pledged in favor of the debenture holders together with a lien on other assets, thereby transforming the group's debenture holders from being unsecured creditors to secured creditors backed by collateral.

As previously reported, in the updated plan, the company expects to raise NIS 450 million by the end of 2020 and a further NIS 50 million by April 2021, of which NIS 137 million has already been raised.

The updated plan also includes the following points:

• There will not be a change in the amounts and dates of payments to debenture holders in respect of the existing repayment schedule at the date of approval of the amendment to the deed;

• Debenture holders will transform from being unsecured creditors to secured creditors and will receive collateral to secure their payments in significant amounts of billions of shekels, including a lien on 40% of the shares of Delek Drilling and a lien on the overriding royalties from the Leviathan field;

• Repayment of the credit to the company's and Delek Energy's lender banks in the coming months in an amount of NIS 1 billion and release of the collateral pledged in their favor;

• By May 31, the financial covenants stipulated in the original deeds of trust of the debentures will not be applicable;

• The updated deed of trust of the debentures includes more flexible financial covenants for Delek Group.

The plan, together with the standstill agreement, will prevent the possibility of realizing any core assets of the company at present market prices, and will grant the group time to strengthen both liquidity and the capital structure, as well as the possibility to benefit from the expected recovery in the global energy markets, which will also lead to an increase in the value of the group's energy assets, the company said.

As part of the proposal, there is a provision of material collateral to the debenture holders including 40% of the shares of Delek Drilling, and a lien on the company's rights in the overriding royalties from the Leviathan field, with all receipts in this connection serving to repay the debentures according to the existing repayment schedule.

As part of the amendment to the deed of trust, the company will already pledge at the first stage 10% of the participation units of Delek Drilling in favor of the debenture holders.

The company intends to raise capital of NIS 300 million by July 30, a further NIS 150 million by Dec. 15, and NIS 50 million by April 8, 2021, so that it is the company's intention to raise NIS 500 million, as compared with the overall capital raising of NIS 400 million according to the previous proposal.

As part of the plan, the approval of the debenture holders will be given to pledge Delek Israel to the group's secured creditors so that they can be paid from the receipts that will be received from the sale of Delek Israel and afterwards the 40% of the participation units will be released in favor of the debenture holders that were pledged in their favor (out of 55% held by the company). The company plans to pledge the participation units in favor of the debenture holders by Oct. 30.

Simultaneously with the amendment of the deed, the company set up its relations with its lender banks that are mainly secured by participation units of shares of Delek Drilling. Shares of Delek Israel will be pledged to the secured banks of Delek Group and Delek Energy (pro-rata to the credit balance of each bank with each of the companies), in addition to the Delek Drilling participation units pledged to them for existing loans.

Delek Drilling units pledged in favor of the companies' lender banks will be released in favor of the company's debenture holders after repayment of the banks' credit.

The standstill period with the banks will be until Sept. 30, with the possibility of an extension by an additional month at certain terms, as published in the wording of the standstill document.

During the standstill period and subject to the terms of the agreement, the banks will not demand additional collateral, will not put up the credit for immediate repayment, and will not realize the participation units of Delek Drilling, in line with and subject to the terms detailed in the standstill paper.

The plan includes the agreement of the secured banks to all the liens granted to the trustees and the debenture holders under the amended deed of trust.

The company also committed in the deed that by Oct. 30, it will receive NIS 400 million as a dividend from Delek Israel that will be used for repayment of debts to the banks secured by participation units of Delek Drilling, at the same time as the release of these units by the banks and their transfer as a lien in favor of the debenture holders.

In parallel and subject to approval by the meeting of the debenture holders, the trustees of the debentures holders will undertake not to demand that the company's debt be put up for immediate repayment, from the date of approval of the agreement until May 31, 2021, on account of claims of a reduction in the rating of the group's debt or non-compliance with the terms of minimum shareholders' equity or other financial covenants of the group, in their meanings in the proposal.

In addition, the deeds of trust of the debentures will be amended to include the following financial covenants, that will become effective from May 31, 2021, the main points of which are that the rating of the company's debt will not decline below BBB-, the company's shareholders' equity will not decline from NIS 1.6 billion until the end of 2021, NIS 2 billion until the end of 2022, and NIS 2.4 billion until the end of 2023, the shareholders' equity to balance sheet ratio will be 12.5% between the financial statements for the second quarter of 2021 until the 2021 annual financial statements, and a ratio of 15% at the end of 2022, a ratio of 17.5% at the end of 2023, and from 2024 a minimum ratio of 20%.

Tel Aviv-based Delek Group is an independent exploration and production company with activities in the U.K. North Sea and the East Mediterranean.

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