Asia Pacific Refinancing Deal of the Year 2001 - TXU Australia Refinancing
Large and complex demergers of distribution and supply businesses
have become a staple of the US power market in recent years. Texan
utility TXU, going through deregulation in its home market, has
exported the concept to its Australian operations in a
groundbreaking refinancing. Through borrowing vehicle TXU Australia
Holdings Pty. Ltd., TXU Australia raised funds to refinance its
entire existing bank debt and some outstanding bonds. Only a modest
A$85 million ($43.1 million) of the total A$2.1 billion ($1
billion) was for capex, earmarked for build out of a distribution
business.
The interesting and innovative aspect of the transaction lies not merely in the refinancing, however, but in the fact that the highly structured facility provides for TXU Australia to reorganise itself and maximise returns on future development.
TXU has been active in Australian power markets since 1995, spending in the region of A$4 billion making its mark across the retail, distribution, generation and trading sectors. It now boasts 410,000 gas customers in Victoria's west and 510,000 power customers in the state's east, ownership of an underground storage facility and a long-term lease on a South Australian generator.
TXU has stated a desire to increase returns and expand generation capacity and retail base as competition across the eastern seaboard opens up. It commenced talks with financial adviser Citibank at the beginning of 2001 with a view to restructuring debt.
Together with the other two mandated lead arrangers, WestPac and National Australia Bank, Citibank put together and sold down a A$2.1 billion financing addressing this. Debt breaks down into a four 3-year term loans of A$500 million, A$770 million, A$135 million and A$85 million as well as a A$500 million 3-year revolving credit and a A$100 million 1-year revolving credit. The financing's fragmented structure is designed to allow TXU Australia to split into two, separating electricity and gas distribution assets (regulated network business) from gas and electricity generation, retail and trading operations (unregulated business).
The impetus behind this is that TXU Australia can begin the process of selling off of the lower risk, but lower return, regulated business networks. In so doing, capital can be released for growth in the higher risk, but higher yielding, unregulated merchant energy business in which TXU Australia has announced its intention to focus.
?The highly structured nature of the deal allows TXU Australia to line up pieces of its debt portfolio to migrate across with potential sale of portions of the regulated business,? explains one deal participant. ?Of course, success in selling off the debt would be subject to certain conditions being met, such as achieving minimum credit ratings.? TXU Australia is left with the option to refinance the relatively short-term debt associated with the unregulated business independently.
Syndication was in two phases, although the first round was so successful that the retail stage was scaled back, with only three extra banks signed in. In addition to the mandated lead arrangers, the bank line up reads as follows: Co-arrangers are Bayerische Hypo-und-Vereinsbank, BNP Paribas, WestLB, Bank of Scotland, Commonwealth Bank of Australia, Toronto-Dominion, ANZ and Barclays Capital. Senior lead managers are RBC and Mizuho, lead managers Credit Agricole Indosuez and Sumitomo. Finally, Deutsche, Bank of Tokyo-Mitsubishi and ING signed up as managers.
Robert Jenkins at National Bank of Australia in Sydney believes the deal could set a precedent for the future, ?This transaction witnesses banks taking on a very complex financing option in order to meet the needs of the clients. Once upon a time, lenders would simply not have been prepared to go this extra mile but now we will see this ?stretch' into new complexity becoming increasingly common.?
The interesting and innovative aspect of the transaction lies not merely in the refinancing, however, but in the fact that the highly structured facility provides for TXU Australia to reorganise itself and maximise returns on future development.
TXU has been active in Australian power markets since 1995, spending in the region of A$4 billion making its mark across the retail, distribution, generation and trading sectors. It now boasts 410,000 gas customers in Victoria's west and 510,000 power customers in the state's east, ownership of an underground storage facility and a long-term lease on a South Australian generator.
TXU has stated a desire to increase returns and expand generation capacity and retail base as competition across the eastern seaboard opens up. It commenced talks with financial adviser Citibank at the beginning of 2001 with a view to restructuring debt.
Together with the other two mandated lead arrangers, WestPac and National Australia Bank, Citibank put together and sold down a A$2.1 billion financing addressing this. Debt breaks down into a four 3-year term loans of A$500 million, A$770 million, A$135 million and A$85 million as well as a A$500 million 3-year revolving credit and a A$100 million 1-year revolving credit. The financing's fragmented structure is designed to allow TXU Australia to split into two, separating electricity and gas distribution assets (regulated network business) from gas and electricity generation, retail and trading operations (unregulated business).
The impetus behind this is that TXU Australia can begin the process of selling off of the lower risk, but lower return, regulated business networks. In so doing, capital can be released for growth in the higher risk, but higher yielding, unregulated merchant energy business in which TXU Australia has announced its intention to focus.
?The highly structured nature of the deal allows TXU Australia to line up pieces of its debt portfolio to migrate across with potential sale of portions of the regulated business,? explains one deal participant. ?Of course, success in selling off the debt would be subject to certain conditions being met, such as achieving minimum credit ratings.? TXU Australia is left with the option to refinance the relatively short-term debt associated with the unregulated business independently.
Syndication was in two phases, although the first round was so successful that the retail stage was scaled back, with only three extra banks signed in. In addition to the mandated lead arrangers, the bank line up reads as follows: Co-arrangers are Bayerische Hypo-und-Vereinsbank, BNP Paribas, WestLB, Bank of Scotland, Commonwealth Bank of Australia, Toronto-Dominion, ANZ and Barclays Capital. Senior lead managers are RBC and Mizuho, lead managers Credit Agricole Indosuez and Sumitomo. Finally, Deutsche, Bank of Tokyo-Mitsubishi and ING signed up as managers.
Robert Jenkins at National Bank of Australia in Sydney believes the deal could set a precedent for the future, ?This transaction witnesses banks taking on a very complex financing option in order to meet the needs of the clients. Once upon a time, lenders would simply not have been prepared to go this extra mile but now we will see this ?stretch' into new complexity becoming increasingly common.?
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