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Signing of an Agreement for the Financing of the Delek Group Partnerships’ Share in the Costs of Development of the Leviathan Project
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Tel Aviv, February 21, 2017. Delek Group (TASE: DLEKG, US ADR: DGRLY) ("the Company") announces that further to immediate report dated November 27, 2016 (Ref No. 2016-01-132058), with regard to a signature of a Commitment Letter for the signing of a financing agreement, the Compnay provides below an Immediate Report submitted by each of Delek Drilling - Limited Partnership and Avner Oil Exploration - Limited Partnership (jointly the 'Partnerships'), concerning signature of a Commitment Letter for the signing of a financing agreement for limited recourse project financing of the Partnerships' share in the development of the Leviathan project.

Further to the immediate report of November 27, 2016 regarding the signing of a letter of undertaking to sign a financing transaction, notice is hereby given that on February 20, 2017, the financing documents (the "Financing Agreement" or the "Agreement") were signed between the Partnerships and a consortium of local and foreign finance providers headed by HSBC Bank Plc. and J.P. Morgan Limited (collectively: the "Lenders"), whereby a limited recourse loan shall be provided to the Partnerships in the sum of approx. $875 million each (the "Loan"), for the purpose of financing its share in the balance of the investment in the development of the Leviathan project (the "Leviathan Project"). Concurrently with the signing of the Financing Agreement by the Partnerships, a financing agreement was signed under the same terms and conditions and for the same purposes between the Lenders and Partnerships for receipt of a loan in the same amount. The loans to be provided to the Partnerships amount in total to $1.75 billion.

The Loan is divided into facilities, as follows:

Facility A in the sum of $375 million per Partnership, which will be available for withdrawal upon fulfillment of several preconditions, primarily the adoption of a Final Investment Decision (FID) by the partners in the Leviathan Project for development of Phase IA in the development plan, and the registration of pledges in favor of the Lenders by the Petroleum Commissioner.

Facility B in the sum of $187.5 million per Partnership, which will be available for withdrawal upon fulfillment of several preconditions, primarily engagement in construction agreements which were defined in the Agreement.

Facility C in the sum of $187.5 million per Partnership.

Facility D in the maximum sum of $125 million per Partnership. Withdrawal of Facility D is contingent on the injection of money from a source other than the Financing Agreement monies (the 'Equity'), such that the ratio between the withdrawals from Facility D and the Equity shall be at least 30% Equity/70% withdrawals.

Provision of Facilities B, C and D by the Lenders will be contingent also on the execution of agreements for the supply of gas at a minimum total annual quantity that was defined in the Agreement, which varies according to the amount of each facility (if the minimum threshold is not met, the facility may be used against the injection of Equity from the Partnerships in the same amount as the amount of the facility used). In addition, provision of each one of the facilities will be contingent on meeting a ratio of no less than 2:1 between the value of the resources in the reservoir (which will be calculated based on the last discounted cash flow figures published by the Partnerships for the project, prior to the calculation, plus the value determined in the Agreement for each gas unit that was not taken into account for the purpose of the discounted cash flow) and the balance of the Loan (the "Required Debt Coverage Ratio").

The loan agreement includes another facility of $375 million per Partnership (totaling $2.5 billion for the two Partnerships), which is contingent on the signing of agreements for the supply of gas at a minimum total annual volume defined in the Agreement, and a decision to increase the capacity of the production and transmission system to Phase 1B of the development plan or alternatives thereto, which may be given by the Lenders, in whole or in part, or by other lenders, although there is no undertaking of the Lenders to provide this facility.

The loan principal will be repaid in a single installment 48 months after the date of execution of the Financing Agreement. The Financing Agreement determines events, the occurrence of any of which accelerates the Loan, which include, inter alia: unlawfulness, falling below a minimal holding rate (as determined in the Agreement) in the General Partner and/or in the participation units of the Partnerships and partial repayment in the case of a partial sale of the Partnerships' rights in the Leviathan Project. The Partnerships are entitled to prepay the Loan at any time, in whole or in part, subject to the terms and conditions set forth in the Agreement.

The Loan is a dollar loan and bears variable interest to be paid every three months, which is calculated according to LIBOR plus a graded margin of an average effective rate (including fees to be paid up to 90 days from the date of execution of the Agreement) of approx. 4.6% throughout the term of the Loan. In addition, the Partnerships have undertaken to pay a commitment fee at the rate of 35% of the margin that shall apply to the Loan in respect of any amount not withdrawn.

The Loan amounts shall be transferred to a wholly owned subsidiary of each Partnership, in accordance with calls made by the operator to the partners in the Leviathan Project and for the purpose of financing part of the costs of the Loan, and shall be transferred as a loan to the Partnerships under the same conditions (back-to-back). The Financing Agreement provides for the amendments required upon closing of the merger of the Partnerships. To secure repayment of the Loan, the Partnerships shall pledge its rights in the assets relating to the Leviathan Project, including, inter alia, the Leviathan leases, the joint operating agreement, the project equipment and the insurance policies, gas sale agreements (including agreements that shall be signed in the future, if any) and the project accounts. The Loan is a limited recourse loan and the Lenders will have no recourse to the Partnerships' assets that were not pledged in their favor. It is noted that the foregoing pledges are subject to royalty rights of the state and to rights of other royalty holders who are entitled to receive royalties from the Partnerships (including interested parties), and that the pledges that the Partnerships have registered on the Leviathan leases in favor of the said royalty holders in the framework of the interim financing transaction to secure their royalty rights will continue to be in effect also throughout the term of the Financing Agreement.

As is customary in financing transactions of this type, the Partnerships have assumed covenants which include, inter alia, the following main covenants: restrictions on the taking of additional credit (these restrictions shall not apply to non-recourse credit, inferior loans from affiliates and credit in the sum total of up to $400 million per Partnership (the 'Additional Credit')); meeting of liquidity tests, whereby on test dates that were determined in the Financing Agreement, the Partnerships will be required to prove that it holds sufficient financing sources to meet its liabilities in the coming 12 months and/or until commencement of the production from the Leviathan reservoir; meeting of the Required Debt Coverage Ratio, which ratio will be measured upon each withdrawal (as aforesaid), on the date of provision of a resource report and on the date of sale of rights in Leviathan, if any; restrictions on a change in the field of business; restrictions on the performance of actions that may have a material adverse effect; the exercise of certain rights by virtue of the joint operating agreement with the consent of the Lenders only, etc. Withdrawal of surpluses from the accounts pledged in favor of the Lenders will be subject to the terms and conditions set forth in the Financing Agreement and subject to partial prepayment of the Loan at the same time in accordance with the withdrawal amount defined in the Agreement.

As is customary in financing transactions of this type, the Financing Agreement defines events of default, upon the occurrence of which the finance providers will be entitled to accelerate the Loan, which include, inter alia, the following main events: cross default of another financial non-limited recourse liability; regulatory action in connection with the Leviathan Project which has a material adverse effect on the Partnerships' ability to fulfill its material undertakings in connection with the Financing Agreement or the project documents (as defined in the Financing Agreement) or on its assets, business or financial position, in a manner which impairs its ability to pay its debts as they become due, or on the project in a manner which jeopardizes or is highly likely to jeopardize the ability to refinance the Loan; termination of agreements for the supply of gas and other project documents if such termination shall or may have a material adverse effect on the ability to refinance the Loan; non-meeting of the liquidity tests that were defined in the Agreement; non-meeting of the Additional Credit conditions as specified above; engagement in hedging transactions, except as agreed according to the Agreement; transfer of control of the General Partner, as defined in the Agreement, and a decline in the control holder's holdings of units of the Limited Partner to 45% and under; abandonment of the project; insolvency events; an ongoing force majeure event in connection with the project which has or may have a material adverse effect; all subject to the conditions and qualifications and/or remediation periods set forth in the Agreement.

The Partnerships have submitted an application to the tax authorities for authorization to gross-up tax for foreign lenders at the rate of 5%. If the authorization is not received, the Partnerships will gross-up the tax in accordance with the composition of the foreign lenders as being on the interest payment dates.

This is a convenience translation of the original HEBREW immediate report issued to the Tel Aviv Stock Exchange by the Company on February 21, 2017.

About The Delek Group

The Delek Group, Israel's dominant integrated energy company, is the pioneering leader of the natural gas exploration and production activities that are transforming the Eastern Mediterranean's Levant Basin into one of the energy industry's most promising emerging regions. Having discovered Tamar and Leviathan, two of the world's largest natural gas finds since 2000, Delek and its partners are now developing a balanced, world-class portfolio of exploration, development and production assets with total gross natural gas resources discovered since 2009 of approximately 40 TCF.

In addition, Delek Group has a number of assets in downstream energy, water desalination, and in the finance sector.

 

For more information on Delek Group please visit www.delek-group.com

Contact

Investors

Dina Vince
Head of Investor Relations
Delek Group Ltd.
Tel: +972 9 863 8444
investor@delek-group.com

Media

Nilly Richman
Head of Communications
Delek Group Ltd.
Tel : +972 9 863 8444
media@delek-group.com

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