Corona Crisis Strikes: Fuel Fuel Bond – 15% Yield – Yield – Capital Market

The Corona crisis strikes a fuel group controlled by Yitzhak Tshuva. The group’s bond – which owes NIS 6.1 billion to holders – is down by up to 7%. The long-term bond yield is down to a “junk” level of 15%. The rise in bond yields reflects investors’ concern over fuel’s ability to meet its debt repayment in the years to come.

Stock fuel Drops by 8%, and since the beginning of the year the stock has fallen by more than 50%. After the fall, the value of the fuel group amounts to NIS 3.4 billion – the lowest since the 2008-2009 crisis. Fuel has since eradicated about NIS 3.5 billion from its corona crisis.

Fuel is exposed to the global energy market, and the concern is that the Corona crisis will cause a severe slowdown or even a recession that will dramatically reduce oil and gas demand. The answer has billions of privately held debt to the banks, for which fuel shares are pledged. Teshuva recently purchased NIS 45 million in private shares.

Repayment of NIS 6.4 billion in three years

The Corona crisis meets Delek as it faces a challenging settlement schedule: The group is required to repay NIS 6.4 billion in principal and interest payments in three years, having recently failed to repay NIS 1.5 billion in debt to domestic and foreign banks.

In 2020, fuel is required for NIS 1.5 billion in principal payments and interest (of which NIS 140 million was already repaid last week); NIS 2.7 billion in 2021; and NIS 2.1 billion in 2022. The Group’s total debts to banks And bond holders – about NIS 9.5 billion.

Since the beginning of the year, the price of oil has dropped by about 25% to about $ 45 a barrel. The decline negatively affects the value of the new oil assets it has recently acquired with fuel, through its subsidiary Ithaca, the Chevron energy grant. The purchase was made in a leveraged deal worth $ 2.3 billion. Delek took large loans to finance the assets – totaling $ 1.8 billion (for banks and bondholders).

The decline in oil prices means the erasure of equity invested in Chevron, a decrease in asset value – and a future fall in cash flows as the price of oil remains low.

In the sensitivity table that included fuel for the second quarter of 2019, it presented scenarios for rising or falling 10% -30% in the price of oil. In a scenario of 20% -30% decline, according to the current situation, the cash flow value of Chevron assets, capitalized at 10% (after tax with no reference to losses carried forward) falls in the range of $ 1.03 billion to only $ 700 million, which is a value lower than about 50% of the acquisition cost.

Drilling fuel fell 50% – bond yields plunged

The drop in oil prices also negatively affects the fuel leverage rate (the ratio of debt to asset value – LTV). The first major asset affecting fuel leverage is Ithaca, a non-negotiable asset whose value, as mentioned, is shrinking with the fall in world energy prices. A second major asset of Delek is the Drilling Fuel Partnership, which holds the gas reservoirs in Israel. Drilling fuel now drops 5%, completing a 50% fall from the beginning of the year. Its bonds fall by 3.3%, yielding a 10% yield.

Fuel has conducted extensive hedging for part of Chevron’s gas and oil output for the period between October 2019 and December 2021 – ensuring some of the repayment sources for years to come. The decision to hedge, made primarily through PUT options and SWAP contracts, turns out to be justified and necessary, despite costs of $ 150 million spent on fuel by the end of 2021.

As of September 2019, Fuel and Ithaca had open hedging deals on oil prices of $ 20 million barrels, at an average gated price of $ 65 a barrel. The hedge deals protect 80% of Ithaca’s cash flow in 2020 and 55% of 2021 cash flow. This is a $ 2 billion revenue hedge in two years – most of which will be used to repay Ithaca’s debt repayment.

Since this is a partial hedge, for a fixed period, as the decline or stagnation in the price of oil and gas continues in the coming months and into 2021, in the scenario of deepening the Corona crisis, this could have a negative impact on Ithaca’s flows and, as a result, on fuel itself.

Fuel: “Financial flexibility, regardless of gas and oil prices”

The Delek Group said in response: “Delek, which is one of the strongest and leading groups in the Israeli economy, is expected to benefit in 2020, and in the following years, significant cash flows that will be used by the Group, among other things, to make early repayments, beyond the current maturities, as part of the strategy. The group.

“The Group has timely taken a series of important measures that cut off gas and oil price volatility and demand forecasts, including through the signing of fuel drilling on long-term export contracts for a period of about 15 years, including take or pay mechanisms and base prices. (Floor), along with hedging oil and gas prices in the North Sea, at $ 64 a barrel of oil and 51 pence per unit of gas heat.

“That is, for the next two and a half years, when by 2020 alone, about 80% of Ithaca’s anticipated production volume is already hedged and secured. These actions, as well as other actions taken, guarantee the group maximum financial flexibility and significant cash flow, regardless of the volatility of Gas and oil prices and market demand. “