PowerTel: close in a cold climate
PowerTel's Fiber-Optic Network project is the most recent test of
banking appetite for Australian telecoms deals. The joint venture's
project facility was small, A$150 million ($75 million), and
comfortably handled by just four participants, ANZ, CIBC, Credit
Lyonnais, Overseas Union Bank together with the two arrangers, JP
Morgan Chase and Toronto Dominion Bank. ?The bank list is basically
a club of Williams Communications' relationship banks [Williams
being one of the principle shareholders in PowerTel],? says one
Australian financier. Each bank committed A$25 million to the
facility.
Club deal or no, according to John Hudson, at Toronto Dominion, appetite for the transaction outside the participating banks was significant. ?There were a lot of institutions interested in the deal but who had to be turned away because of the size,? he says. The financing, which funds a 2,400km network linking Brisbane, Canberra, Melbourne and Sydney business districts, was originally scheduled as a A$300 million facility but was trimmed to just A$150 million after PowerTel's shareholders decided to increase the equity portion.
In general, appetite for telecoms is a lot more shaky than it was 15 months ago, partly due to the amount of debt soaked up by 3G deals in Europe. This has affected other telecoms deals in Australia. For instance, NextGen Networks, the A$850 million national-wide fiber-optic venture between Leighton Holdings and Macquarie Bank, took many months to reach financial close and has only just launched into the syndication market, with syndication scheduled to wrap up in mid-April.
One source close to the deal says that the arrangers had to push the sponsors for additional financial support (principally in the form of an extended level of underwriting for the debt) before they were satisfied that they had a deal that could be sold in the syndicated loan market. NextGen has subsequently held road shows in Sydney, Singapore and London, drawing in between 60 to 70 attendees each time, an average response rate for this sort of project.
?The bank market has become increasingly selective for telecoms sector transactions,? echoes Chris Tomkin at ANZ, ?a lot of institutions are hanging back until a clearer picture of the market emerges?.
Sources close to the PowerTel financing, claim that the company in fact shied away from the larger A$300 million bank debt option because of the potential difficulties in trying to raise the extra A$150 million through the banking community. PowerTel's hesitance was probably heightened by the fact that the project has so far failed to secure any large-scale wholesale contracts and because its original financial projections are now looking overly-aggressive compared with operating results to date. The company recently revised its profit projections for the financial year to December 2000 down by 30%.
Hudson denies that the decision to increase equity was anything more than, ?a strategic move.? What is clear, however, is that the more conservative debt to capitalization ratio (projected to be below 30%) which will result from the announced A$110 million rights issue and the additional A$35 million of equity from major shareholders Williams and Downtown Utilities, has helped to provide extra comfort for the project lenders.
As a result, PowerTel has managed to tap a funding stream at reasonable cost compared to other, recent international fiber-optic deals, particularly for a company whose debt capitalization is rising from 20% to about 28%. The five-year term loan is priced at 300 basis points over BBSY. The larger NextGen A$361 million term loan is being priced at 350 basis points over BBSY and 90 basis points over for NextGen's 2.5-year equity bridge, says David Backler at Deutsche Bank, one of the three arrangers of the NextGen transaction.
Comparing the two deals it should be noted that the PowerTel network is already largely built. Also, the project already has revenue coming in and over 100 corporate customers. In contrast, the NextGen deal constitutes the financing of a start-up venture, this extra project risk largely accounting for the 50 basis points pricing gap.
Interestingly, the NextGen project, which reached financial close in late December last year, also features a high proportion of equity in the funding mix. In addition to the A$361 million loan, NextGen's three arrangers (National Australia Bank and WestLB as well as Deutsche Bank) are bringing in A$458 million in private equity from pensions funds and institutional investors.
PowerTel's A$150 million limited recourse transaction will be used to refinance an A$70 million bridge originally provided by JP Morgan and for working capital purposes, in addition to being used to complete the fiber-optic network.
Club deal or no, according to John Hudson, at Toronto Dominion, appetite for the transaction outside the participating banks was significant. ?There were a lot of institutions interested in the deal but who had to be turned away because of the size,? he says. The financing, which funds a 2,400km network linking Brisbane, Canberra, Melbourne and Sydney business districts, was originally scheduled as a A$300 million facility but was trimmed to just A$150 million after PowerTel's shareholders decided to increase the equity portion.
In general, appetite for telecoms is a lot more shaky than it was 15 months ago, partly due to the amount of debt soaked up by 3G deals in Europe. This has affected other telecoms deals in Australia. For instance, NextGen Networks, the A$850 million national-wide fiber-optic venture between Leighton Holdings and Macquarie Bank, took many months to reach financial close and has only just launched into the syndication market, with syndication scheduled to wrap up in mid-April.
One source close to the deal says that the arrangers had to push the sponsors for additional financial support (principally in the form of an extended level of underwriting for the debt) before they were satisfied that they had a deal that could be sold in the syndicated loan market. NextGen has subsequently held road shows in Sydney, Singapore and London, drawing in between 60 to 70 attendees each time, an average response rate for this sort of project.
?The bank market has become increasingly selective for telecoms sector transactions,? echoes Chris Tomkin at ANZ, ?a lot of institutions are hanging back until a clearer picture of the market emerges?.
Sources close to the PowerTel financing, claim that the company in fact shied away from the larger A$300 million bank debt option because of the potential difficulties in trying to raise the extra A$150 million through the banking community. PowerTel's hesitance was probably heightened by the fact that the project has so far failed to secure any large-scale wholesale contracts and because its original financial projections are now looking overly-aggressive compared with operating results to date. The company recently revised its profit projections for the financial year to December 2000 down by 30%.
Hudson denies that the decision to increase equity was anything more than, ?a strategic move.? What is clear, however, is that the more conservative debt to capitalization ratio (projected to be below 30%) which will result from the announced A$110 million rights issue and the additional A$35 million of equity from major shareholders Williams and Downtown Utilities, has helped to provide extra comfort for the project lenders.
As a result, PowerTel has managed to tap a funding stream at reasonable cost compared to other, recent international fiber-optic deals, particularly for a company whose debt capitalization is rising from 20% to about 28%. The five-year term loan is priced at 300 basis points over BBSY. The larger NextGen A$361 million term loan is being priced at 350 basis points over BBSY and 90 basis points over for NextGen's 2.5-year equity bridge, says David Backler at Deutsche Bank, one of the three arrangers of the NextGen transaction.
Comparing the two deals it should be noted that the PowerTel network is already largely built. Also, the project already has revenue coming in and over 100 corporate customers. In contrast, the NextGen deal constitutes the financing of a start-up venture, this extra project risk largely accounting for the 50 basis points pricing gap.
Interestingly, the NextGen project, which reached financial close in late December last year, also features a high proportion of equity in the funding mix. In addition to the A$361 million loan, NextGen's three arrangers (National Australia Bank and WestLB as well as Deutsche Bank) are bringing in A$458 million in private equity from pensions funds and institutional investors.
PowerTel's A$150 million limited recourse transaction will be used to refinance an A$70 million bridge originally provided by JP Morgan and for working capital purposes, in addition to being used to complete the fiber-optic network.
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