Citadel Capital presents case study of innovative finance arrangement at World Oil and Gas Finance Summit

The study, 'Conducting A Successful Leveraged Buyout (LBO) Amidst a Turbulent Credit Market,' detailed Citadel's acquisition of Canadian oil and gas corporation Rally Energy in the summer of 2007.

'During the early summer of 2007, the global credit markets witnessed a new paradigm-an unprecedented volatility in debt markets,' El-Housseiny said. 'The U.S. sub-prime mortgage market originally triggered the volatility but it quickly spilled over to all markets.'

The iTraax crossover, the key index for leveraged credit pricing, hit a historical high, going from under 200 basis points in late May, to over 450 basis points by July, effectively doubling the cost of subordinated debt.

On August 1st an agreement had been signed between Rally Energy Corporation and Citadel Capital (through Logria, a company owned by NPC which is part of Citadel Capital portfolio). The agreement enabled Citadel Capital to acquire 100% of Rally shares for a share value of CAD$7.3. The total transaction value is CAD$877m ($868m).

El-Housseiny added: 'Days later the main financing disappeared, leaving Citadel Capital short almost $600m of the acquisition funding required. From July to September, in the middle of the most turbulent credit crisis to ever hit the international debt market, Citadel Capital arranged over $700m of debt facilities through very innovative structures which finally enabled it to conclude the acquisition on time.'

Following the shareholders' approval, closing procedures took place ending with the share transfer of all Rally's outstanding shares to Logria on September 27th, 2007.

Rally Energy is a Canadian-based, exploration, development and production company. Rally's primary area of operations is Egypt, where it has a 100% operating interest in the Issaran Oilfield, a significant heavy oil development opportunity. In Pakistan, the Rally holds a 30% stake in the Safed Koh Block, where it is participating in the development of a natural gas/condensate discovery. Total production stands at 7000 barrels of oil equivalent per day.

'We are glad to conclude the Rally deal, as we feel both the Issarran and the Safed Koh assets are a complement to our currently owned assets in Gulf of Suez and North Sinai. Safed Koh is considered NPC's first asset outside the Egyptian borders.' added Karim Sadek, a Citadel Capital Managing Director.

El Houssieny commented: 'It was a challenge to execute the innovative financing structure that Citadel Capital designed in lieu of the prevailing international market conditions. The financing structure is based on a number of various instruments including mezzanine and senior debt. We also executed a hedging program to manage the risk of fluctuating oil prices.'

The senior debt facility was arranged and underwritten by BNP Paribas as mandated lead arranger and lender for the amount of US $444 million. The loan is structured as a reserve-based loan which will enable the company to raise additional finance in the future following the successful development of its hydrocarbons reserves. In addition to the senior debt facility, Citadel Capital has also placed $100m of mezzanine debt as well as a shareholders' instrument for $108m.

'Being able to raise the required debt financing from international institutions during this turbulent period and the successful conclusion of the transaction, reflects Citadel Capital's credibility in the market place, and reiterates our unwavering commitment to the Egyptian oil & gas sector,' concluded El Houssieny. themselves on supermarket shelves.'