Gulf Oil and Gas accountACCOUNT

$2.25B Bonds for Leviathan Project

Source: www.gulfoilandgas.com 8/5/2020, Location: Middle East

1- On August 4, 2020, the pricing process of the Issue was completed, in which offers were received for the purchase of the Bonds in an amount significantly exceeding the amount offered in the Issue. As a result of the aforesaid, an agreement was signed on August 4, 2020 between the Issuer and J.P. Morgan Securities plc and HSBC Bank plc, themselves and as representatives for other foreign and Israeli purchasers (the “Purchasers” and the “Underwriting Agreement”, as the case may be), according to which the Purchasers undertook to purchase from the Issuer, on the closing date, which was scheduled for August 18, 2020 (the “Closing Date”), Bonds in an aggregate amount of $2.25 billion, subject to the terms and conditions of the Underwriting Agreement.

According to the Underwriting Agreement, the Bonds will be issued in four series (the “Series”), as follows:

a. Bonds in an aggregate principal amount of $500 million, maturing on June 30, 2023 (in a single payment), bearing fixed annual interest of 5.750%.

b. Bonds in an aggregate principal amount of $600 million, maturing on June 30, 2025 (in a single payment), at a fixed annual interest rate of 6.125%.

c. Bonds in an aggregate principal amount of $600 million, maturing on June 30, 2027 (in a single payment), at a fixed annual interest rate of 6.500%.

d. Bonds in an aggregate principal amount of $550 million, maturing on June 30, 2030 (in a single payment), at a fixed annual interest rate of 6.750%. The Bond principal and interest are in dollars. The interest on each one of the Bond Series will be paid twice a year, on June 30 and on December 30.

2. On August 3, 2020, the Issuer received the approval of the Tel Aviv Stock Exchange Ltd. (“TASE”) for the listing of the Bonds on the TACT-Institutional system of TASE (“TACT-Institutional”), subject, inter alia, to approvals that are required pursuant to any law and the closing of the Issue.

3. The full Issue proceeds will be provided by the Issuer as a loan to the Partnership on terms and conditions identical to those of the Bonds (back-to-back), and according to a loan agreement to be signed between the Issuer and the Partnership (the “Loan”). The Loan money is intended to be used by the Partnership for repayment of the Existing Loans in the sum of approx. $2 billion, the deposit of a safety cushion in the sum of $100 million in accordance with the terms and conditions of the Bonds, payment of the Issue expenses in the estimated sum of approx. $30 million, and the balance for other uses according to the terms and conditions of the Petroleum Commissioner’s approval as described in Section 7 below (the “Commissioner’s Approval”).

4. To secure the Bonds and the Loan, in the context of the indenture for the Bonds and the other documents according to which the Bonds will be issued (collectively: the “Financing Documents”), the Partnership has undertaken to pledge in favor of the trustee for the Bonds (the “Trustee”), in a first-ranking fixed charge, its interests in the Leviathan project (45.34%), including its interests in the I/14 Leviathan South and I/15 Leviathan North leases (the “Leases”), the operating approvals of the production system and the export approvals (collectively: the “Pledge of the Leases”), the Partnership’s rights and the revenues from agreements for the sale of gas and condensate from the Leviathan project (the “Gas Agreements”), the Partnership’s rights in the joint operating agreement (JOA) for the Leases, the Partnership’s share in the project’s assets (including the platform, wells, facilities, and systems for production and transmission to shore), the Partnership’s rights in dedicated bank accounts, certain insurance policies and various licenses in connection with the Leviathan project. The Partnership shall also pledge the shares held thereby in the Issuer, in NBL Jordan Marketing Limited and in Leviathan Transportation System Ltd. In addition, the Issuer undertook to pledge in favor of the Trustee, in a first-ranking floating charge, its rights in all of its existing and future assets and will pledge in favor of the Trustee its rights in the loan agreement and in its bank accounts (collectively: the “Pledges” and the “Pledged Assets”, as the case may be).

According to the Financing Documents, the Partnership’s undertakings to the Trustee and the bondholders are limited to the Pledged Assets, with no guarantee or additional collateral.

It is noted that the Pledges that the Partnership shall create in favor of the Trustee are subject, inter alia, to the State’s royalties according to the Petroleum Law and to the rights of the parties entitled to royalties in respect of the Partnership’s revenues from the Leviathan project, including the holder of the controlling interest in the Partnership, and that the Pledges that the Partnership has created on its interests in the Leases in favor of the said royalty interest owners in the context of previous loans it received for purposes of the Leviathan project shall continue to be in effect also in the period of the Bonds (see Section 7.21.1(a) of the Periodic Report).

5. As is standard in financing transactions of this type, the Financing Documents determined stipulations, restrictions, covenants and grounds for acceleration of the Bonds and enforcement of the Pledges.

It is emphasized that the specification presented below constitutes a partial and non-exhaustive summary of the relevant provisions, and that the Financing Documents specified, in relation to the various grounds and covenants qualifications to the covenants and grounds for payment, including the conditioning of some of them on the existence of a Material Adverse Effect (MAE) as defined in the Financing Documents, as well as exceptions, conditions and remediation periods which are not specified in the description below.

6. The expected rating of the Bonds is as follows:

a. Fitch Rating – “BB (EXP)” on the international rating scale;
b. Moody’s – “Ba3” on the international rating scale;
c. S&P Global – “BB-” on the international rating scale;
d. Maalot S&P – “ilA+” on the Israeli rating scale.

Final rating reports are expected to be released close to the closing date. 7. On August 3, 2020 the Petroleum Commissioner’s approval was received for the Pledge of the Leases in favor of the Trustee, for the bondholders. The Commissioner’s Approval provides that, inter alia, the pledge is given to secure payment of the Bonds whose proceeds are intended for the granting of credit to the Partnership in the sum of up to $2.5 billion in total, for payment of the Existing Loans in the sum of up to $2,050 million, the deposit of a safety cushion in the sum of $100 million, investments in the Leviathan project only and the financing of the construction of a pipeline for the export of gas from the Leviathan and Tamar reservoirs.

8. The Underwriting Agreement sets forth closing conditions for the performance of the Purchasers’ undertaking to buy the Bonds on the closing date, including that until the closing date there was no downgrade of the Bonds’ rating; no event with an MAE; the required approvals and permits were received; officer declarations were received; consultants’ reports and comfort and reliance letters, as specified in the agreement, were received; the required approval from the Gas Authority was received, as well as the Commissioner’s Approval (which, as aforesaid, has been received); approval was received from TASE to list the Bonds on the TACT-Institutional system, etc.

In the Partnership’s estimation, the said conditions are expected to be fulfilled in the coming days, and insofar as they are, the Issuer expects to receive the Issue proceeds on the closing date, i.e., August 18, 2020, against the issue and listing of the Bonds on the TACT-Institutional system.

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