Alrosa Is Forced to Pay More on Loan

APAlrosa employees standing at a diamond display in the town of Mirny, in the northern republic of Sakha in 2006.
Banks that provided an unsecured $350 million, one-year syndicated loan for state diamond miner Alrosa have successfully invoked a market disruption clause in response to credit market turmoil, a banking source close to the deal said Monday.

Alrosa is the first European firm to be named in a successful attempt to use the clause, which will increase pricing on its loan as banks switch from screen-based London interbank offered rates to reference rates provided by syndicate members, which better reflect banks' high cost of funds.

An Alrosa representative declined to comment.

"Borrowers should have to pay up, they have had a free option for too long," a head of the loan syndicate said.

News of the move is likely to aid the push to reprice existing loans to better reflect current credit-market conditions and limit losses for banks that are having to fund low-priced loans while interbank borrowing costs remain at record highs.

Alrosa was paying an already high margin of 225 basis points over LIBOR on the $350 million loan, which was signed in February, and will now see another steep rise in its borrowing expenses to cover banks' high cost of dollar funding.

The banker close to Alrosa's loan said the required threshold was just exceeded.

Privately, however, reports are filtering in of other loans that have met the threshold, amid talk that the syndicate threshold has been dropped to make the clause easier to implement.

Bankers have dropped the threshold from 20 percent to 25 percent approval from the syndicate for some Russian borrowers, and one banking source reported seeing a Russian loan with a threshold as low as 15 percent.