• Commodity trader in talks with banks for $1 billion facility
  • Company said to offer margin of 2.25 percentage points

Noble Group Ltd., the junk-rated commodities trader, is facing much higher financing costs to arrange an unsecured loan of at least $1 billion, according to three people with knowledge of the terms.

The Hong Kong-based company, which started marketing the one-year revolving credit facility this week, is offering to pay 2.25 percentage points more than the London interbank offered rate, the people said, asking not to be identified because the talks are private. That compares with the 0.85 percentage-point spread Noble paid last year for a similar loan.

The financing signals that banks are still willing to support the embattled trading house, though they’re tightening the leash by requiring much higher margins. Noble Group has been under increasing pressure since Moody’s Investors Service Inc. and Standard & Poor’s cut its debt rating at the turn of the year amid collapsing commodity prices.

The new loan, which could expand to as much as $1.5 billion depending on the appetite of lenders, will help refinance two other facilities maturing next month -- a 364-day and a three-year loan -- valued at almost $2.2 billion combined, the people said.

The company declined to comment.

Financing Talks

Noble Chief Executive Officer Yusuf Alireza needs to refinance various loans before they expire between mid-April and the end of the year. Discussions with banks are “well advanced,” he said Feb. 25 as the company posted its first annual loss since 1998.

Noble’s shares were hammered in 2015 after the company’s accounting practices, including how it values long-term contracts, were criticized by the anonymous group Iceberg Research.

Eight banks are arranging the new revolving credit facility, the people said. They are Mitsubishi UFJ Financial Group Inc., Commonwealth Bank of Australia, Cooperatieve Rabobank, DBS Group Holdings Ltd., HSBC Holdings Plc, ING Groep NV, Societe Generale SA and United Overseas Bank Ltd., they said.

In addition, Noble is working with banks to arrange its largest ever loan backed by inventories. The trader is seeking $2.5 billion in a so-called borrowing-base facility guaranteed by oil, with the potential to expand to $3.25 billion if commodity prices rise over the next year, people familiar with the matter said last month. Noble is offering to pay a rate starting at 1.6 percentage points more than Libor for the secured loan.

Noble previously relied mostly on unsecured loans, with only a $450 million secured loan backed by oil stored in the U.S. That facility was increased to $1.1 billion last year.

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