Anatomy of a Deal | Financing First Quantum

Engineering a financing agreement between 40 different companies across 14 jurisdictions is no mean feat, as Mayer Brown trainees found out when they worked on such a deal for the lenders to First Quantum Minerals.

The agreement was to secure a $3bn loan for the Canadian-based mining company.

Forty entities, all under the First Quantum banner, were involved in the deal, which spanned 14 jurisdictions and all in all encompassed seven operating mines and five development projects around the world.

The funds were not being directed towards any particular project: instead, they were needed as both working capital and for various plant and equipment costs.

Landing the deal

Although Mayer Brown acted for the lenders, a consortium of banks, led by Standard Chartered and BNP Paribas, the borrower First Quantum had a heavy say in which law firm was used.

“We do a lot in the mining sector,” explains deal lead and finance partner Rachel Speight. “We have been active in it for a number of years and back in 2006 we acted for the lender group on another First Quantum deal.

“We must have done a good job because they wanted to use us again this time. As the borrower pays law firm fees in this kind of deal, they have a strong say in who the lenders use as their lawyers.”

Mayer Brown was asked to pitch for the work, and was selected from a shortlist in September 2013.

Getting started

Work on the deal started in the autumn of 2013. The Mayer Brown team, led by Speight, began by nailing down the commercial specifics of the deal within a term sheet.

“The term sheet is essentially a summary of the commercial terms,” explains finance associate Doye Balogun. “It will set out who the parties are, the lenders, the borrower group, the size of the deal, the security package and relevant documents and a summary of the key terms and provisions of the loan documents.”

While drawing up a term sheet is standard practice in finance deals, the scale of this deal and the number of parties involved meant that the term sheet was more complex than usual. “The main term sheet ran to about 24 pages, rather than the usual 10,” says Balogun. “Because of the size of deal and money involved it was important for the parties to flesh out as many of the commercial terms as possible upfront.”

Not every company under First Quantum’s umbrella would be a direct borrower but it was important for every entity to sign up to the term sheet as money can sometimes be lent from one subsidiary to another within the main group and each entity acts as a guarantor and grants security over the assets they own with regard to the obligations of the borrower.

Of the $3bn borrowed, $1.2bn was a term loan and $1.8bn was a revolving credit facility. The various projects First Quantum wanted to undertake meant that the corporation would be better off with certain types of loan for differing types of purposes. The term loan would be used for projects such as building a new plant while the revolving credit facility would provide a more flexible approach for costs such as working capital.

“A term loan is what you’d normally imagine when you think of a loan,” says Speight. “You lend it and at the end of the term it’s paid back.”

“Think of a revolving credit facility like a credit card,” Balogun advises. “You can borrow a bit and pay it back; borrow again and pay that back and you can draw down (subject to an overall limit) whenever you want. Revolving credit allows you flexibility – you don’t want to pay credit card fees when you don’t have to after all.”

Constructing the loan agreement

Negotiating and drafting the term sheet took Speight’s team until the end of 2013. As the new year began, they began to construct the loan agreement, running to between 200 and 300 pages, drawing from the principles of the term sheet and ensuring that the commercial terms worked for the borrower. If the borrower is subject to too many or too strict conditions, the loan may not work as it is supposed to.

Speight looked after the loan agreement, maintaining client contact and drafting the document itself while Balogun was dispatched to look after a separate loan facility for one jurisdiction within First Quantum’s reach.

“I looked after a smaller $350m deal in Zambia,” he explains. “It was being used just by the Zambian entity for its working capital needs and was secured by a different security package with a slightly different group of lenders but it still had to be permitted by the main lender group.”

“I took the main facility while Doye dealt with the Zambian deal,” adds Speight. “And between us we did the security documents while the trainees in the team chased papers.”

The trainees’ role

Trainee tasks revolved around conditions precedent, which refers to notifying the relevant company boards and getting their approval and signatures before moving forward with the loan.

Although the trainee tasks on the deal were typical, the scale of the deal made every task more challenging. First Quantum’s empire runs from Australia to Panama and each jurisdiction had external counsel negotiating on the ground, being kept on track by the Mayer Brown team in London.

First Quantum used its own lawyers, Caledonian Consultants, and employed local counsel in some of its jurisdictions, meaning that the Mayer Brown team needed to keep track of negotiations between its local counsel and that of First Quantum’s, as well as negotiating directly with Caledonian Consultants.

“It’s fair to say that it comes with its own challenges,” recognises Speight. “And those depend on what country you’re dealing with. General coordination is hard but some people are also easier to get hold of and more responsive than others. In some jurisdictions it is easy – it works the same way as we do here – but others are not quite so straightforward.

“They can sometimes go off on their own tangents and get bogged down in a particular issue so that you end up needing to knock people’s heads together and make them focus on what matters.”

While the nature, if not the size, of the deal was relatively routine in some jurisdictions, in others it was pioneering. “You are sometimes educating the local counsel, which is interesting,” surmises Balogun. “Sometimes there were no precedents for what we were doing so it was a learning process for everyone and we ultimately had to fall back on the principles of the term sheet.

“Because we were lead counsel, we had clearest picture of what we wanted to achieve whereas all of the local counsel were one step removed from that. We had to bring all the parallel mini transactions back to the main vision.”

Getting all 40 companies in 14 jurisdictions to deal close on the same day was a logistical feat. Trainee Tom Bamford kept a table of each country’s national holidays to work out when the deal could close. Two closes were eventually decided on: one at Mayer Brown’s London office and one in its Paris hub.

His time in the finance department coincided well with the loan agreement section of the deal, meaning that he could see it through until the end and the team didn’t lose a knowledgeable member halfway through.

“It is always a nightmare from our perspective,” says Speight. If you lose a trainee halfway through a deal then all the information already in their heads goes with them.”

Bamford attended the Parisian close, catching the Eurostar at dawn. “We set off at 6am,” he recalls. “I was barely awake but it turned out to be good fun. I haven’t spoken French in a long time but managed to get through it.”

Signing took an entire day at Mayer Brown’s Paris office, with Bamford responsible for guiding signatories through the loan agreement, ensuring that they signed the correct pages. Each signature was then witnessed and notarised before Bamford returned to London that evening.

Not quite the end…

The deal was not yet done, however. As can often be the case, First Quantum wanted to amend the agreement.  

“These agreements are quite often changed,” says Speight. “Either to increase amount of facility if the business realises it need more money or to relax the covenants if they are too restrictive or the business needs more flexibility. The lenders can get together and reconsider.”

In this case, First Quantum wanted to relax some of the covenants. One key reason for this was that the Zambian government introduced a new tax, which had the potential to change the economics of the deal. The other was that the price of copper became depressed.

“The Zambian government subsequently stepped back a little from the new legislation but at the time it looked like the deal was not going to add up,” explains Speight. “With the copper price also being depressed, the company found the initial agreement challenging and the lenders were happy to amend it.”

Trainee Emma Sturt, in her second seat at the time, took over the trainee role on the deal from Bamford. She then performed a similar role, ensuring that all corporate authorisations were in place in all 14 jurisdictions.

“I became involved about a month before signing,” she says. “I started in the finance team when it was super, super-busy and initially responded to a capacity request for half an hour. Obviously it then it turned into something rather bigger than that.”

It may have been no mean feat but the Mayer Brown team took the deal in its stride: a deal which had encompassed two closings, 14 jurisdictions and 40 companies eventually completed on 2 May 2014.

Sponsor’s comment: Danielle White, graduate recruitment and development manager, Mayer Brown

Trainees play a fundamental role in the successful completion of deals at Mayer Brown and as this example shows, they are given responsibility at an early stage in their career.

While this can be daunting at first, associates and partners take the time to mentor trainees and encourage them to ask questions. Our training programme embraces both formal and informal sessions and as a trainee you will spend a seat on a client or international secondment. Much of the work that we do is cross-border, so you can expect to develop commercial, legal skills within a global environment.

There is no such thing as a conventional Mayer Brown trainee as we recruit people from a wide range of backgrounds and circumstances. Ultimately, we look for people who are enthusiastic, hard working and show a genuine interest in the firm.