Sydney Airport
Australian Transport Deal of the Year 2002
Sydney Airport Privatization
The biggest airport trade sale ever completed and Australia's largest trade sale to date ? financing for the A$5.588 billion ($3.19 billion) acquisition of Sydney Airport Corporation (SAC) by the Southern Cross consortium, closed in June 2002.
Despite the accolades, some equity investors were less than happy with the price paid for SAC and ditched shares in Macquarie Airports (MAp), a listed vehicle that holds 40% of the equity raised for the bid (Macquarie's combined equity stake is 53%).
Southern Cross conceded at the time that the bid was substantially higher than the offers from the two other potential buyers ? Sydney Gateway, backed by AMP and Deutsche Bank, and the ABN Amro-led Connect consortium (Southern Cross reportedly paid A$640 million more than Sydney Gateway, the next highest bid). And the final price was very healthy ? 24.7 times 2001A EBITDA.
Conversely, Macquarie claimed it had got a bargain given the airport's most recent earnings of A$316 million had already outperformed earnings estimates contained in the MAp prospectus. In simple terms the other bids were based on short-term events and were too conservative. And Macquarie has a point. Bids were set against a backdrop of initial sale deferral due to 9/11, and the demise of Ansett Airlines, a leading domestic carrier and major customer of Sydney airport. Furthermore, negotiations were dogged by complex foreign and airport ownership restrictions. All were valid risks ? but all were also unique to very recent airline industry history.
Despite the difficult backdrop to syndication, the transaction was well received in the bank market and was 100% oversubscribed in sub-underwriting. The deal comprises A$3.95 billion in senior secured facilities, A$2.015 in equity and A$600 million in an ASX listed hybrid security ? FLIERS (Floating IPO Exchangeable Reset Securities).
The senior secured debt was split into A$2.45 of three- and five-year money and a one-year A$1.5 billion bridge facility The senior loan was rated BBB by S&P and Baa2 by Moody's. Barclays Capital, Commonwealth Bank of Australia (CBA), Royal Bank of Scotland (RBS) and SG all came in as joint lead arrangers of the bank loans. The bridge facility was subsequently refinanced through a A$1.5 billion multi-tranche MBIA-wrapped bond in October.
Banks were comfortable with the large volumes, partly because of the A$2 billion equity cushion, and 19 came in at arranger and/or lead manager level.
The senior facilities break down into a A$2.25 billion tranche drawn to complete the acquisition and a A$200 million three-year capital expenditure facility for ongoing airport development. The drawn facilities are made up of a A$900 million three-year tranche and a A$1.350 billion five-year tranche with bullet maturities. Pricing is based on a ratings grid with the initial margin set at 97.5 bp over BBSY for the three-year tranche and 110 bp for the five-year tranche.
Sub-underwriters were invited for commitments of A$225 million and A$150 million, with upfront fees set at 85bp and 70bp respectively.
Security for the senior loan includes a charge over the airport assets, a fully funded six-month debt-service reserve and a first claim on cash flows. Covenants stipulated a cash flow coverage ratio of a minimum of 1.1 times and a gearing ratio maximum of 0.75 times.
On the equity side, for the three bidding consortia to each identify 51% Australian equity for such a large acquisition was always going to be a major challenge. One of the key deal innovations, which allowed Southern Cross to find additional sources of equity, was the use of the 10-year hybrid equity instrument ? Fliers.
Macquarie Equity Capital Markets and UBS Warburg jointly underwrote the BBB- rated (one notch rating differential on senior debt), $600 million issue. Fliers allowed the sponsors to leverage up and secure a larger bid price as the securities can be accounted for as Australian equity, thus helping the consortium to fulfil the government requirement that the airport be 51% Australian-owned. The public offering closed in early August and was significantly oversubscribed.
In October 2002, Southern Cross refinanced A$1.5 billion of the remaining senior secured debt through an MBIA-wrapped capital markets issue. Unlike the senior debt, the issue was not an easy sell despite the wrap. Pricing was postponed twice as investors took advantage of the volatility in the global equity markets to demand more generosity from the issuers. The A$640 million fixed and A$860 million floating rate notes were issued at tenors of five and 10 years. A third of investor demand came from offshore, 40% from conduits and the remainder from domestic investors.
Southern Cross Airports
Status: Final signing 11 October 2002
Description: Financing of Sydney Airports Corporation privatisation.
Sponsor: Southern Cross Airports which comprises Macquarie Airports (40%), Ferrovial Aeropuertos (20%), Hochtief AirPort (15%) Macquarie Airports Group (12%) Ontario Teachers' Fund (5%), Abbey National Treasury (5%). MTAA (2%), Macquarie Global Infrastructure Fund (1%)
Financial advisor to consortium: Macquarie
Divestor: Government of Australia
Financial advisor to divestor: Citigroup
Bank Debt: A$1.5 billion bridge facility, A$2.45 billion syndicated bank debt facility.
Mandated arrangers: Barclays Capital, Commonwealth Bank of Australia (CBA), Royal Bank of Scotland and SG;
Arrangers: Abbey National; Bank of America; BNP Paribas; Citibank; Credit Lyonnais; KfW; NordLB; WestLB; ANZ;
Bank of Tokyo-Mitsubishi; China Constuction Bank; Credit Agricole Indosuez; ICBC; National Australia Bank; Sumitomo Mitsui; Westpac
Counsel to the sponsors: Blake Dawson Waldron
Counsel to the lenders: Allens Arthur Robinson
Equity: A$2.015 billon
FLIERS (equity hybrid) underwriters: Macquarie; UBS Warburg
Bond debt: A$1.5 billion
Bookrunners: Barclays; CBA; Macquarie; SG
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Sydney Airport Privatization
The biggest airport trade sale ever completed and Australia's largest trade sale to date ? financing for the A$5.588 billion ($3.19 billion) acquisition of Sydney Airport Corporation (SAC) by the Southern Cross consortium, closed in June 2002.
Despite the accolades, some equity investors were less than happy with the price paid for SAC and ditched shares in Macquarie Airports (MAp), a listed vehicle that holds 40% of the equity raised for the bid (Macquarie's combined equity stake is 53%).
Southern Cross conceded at the time that the bid was substantially higher than the offers from the two other potential buyers ? Sydney Gateway, backed by AMP and Deutsche Bank, and the ABN Amro-led Connect consortium (Southern Cross reportedly paid A$640 million more than Sydney Gateway, the next highest bid). And the final price was very healthy ? 24.7 times 2001A EBITDA.
Conversely, Macquarie claimed it had got a bargain given the airport's most recent earnings of A$316 million had already outperformed earnings estimates contained in the MAp prospectus. In simple terms the other bids were based on short-term events and were too conservative. And Macquarie has a point. Bids were set against a backdrop of initial sale deferral due to 9/11, and the demise of Ansett Airlines, a leading domestic carrier and major customer of Sydney airport. Furthermore, negotiations were dogged by complex foreign and airport ownership restrictions. All were valid risks ? but all were also unique to very recent airline industry history.
Despite the difficult backdrop to syndication, the transaction was well received in the bank market and was 100% oversubscribed in sub-underwriting. The deal comprises A$3.95 billion in senior secured facilities, A$2.015 in equity and A$600 million in an ASX listed hybrid security ? FLIERS (Floating IPO Exchangeable Reset Securities).
The senior secured debt was split into A$2.45 of three- and five-year money and a one-year A$1.5 billion bridge facility The senior loan was rated BBB by S&P and Baa2 by Moody's. Barclays Capital, Commonwealth Bank of Australia (CBA), Royal Bank of Scotland (RBS) and SG all came in as joint lead arrangers of the bank loans. The bridge facility was subsequently refinanced through a A$1.5 billion multi-tranche MBIA-wrapped bond in October.
Banks were comfortable with the large volumes, partly because of the A$2 billion equity cushion, and 19 came in at arranger and/or lead manager level.
The senior facilities break down into a A$2.25 billion tranche drawn to complete the acquisition and a A$200 million three-year capital expenditure facility for ongoing airport development. The drawn facilities are made up of a A$900 million three-year tranche and a A$1.350 billion five-year tranche with bullet maturities. Pricing is based on a ratings grid with the initial margin set at 97.5 bp over BBSY for the three-year tranche and 110 bp for the five-year tranche.
Sub-underwriters were invited for commitments of A$225 million and A$150 million, with upfront fees set at 85bp and 70bp respectively.
Security for the senior loan includes a charge over the airport assets, a fully funded six-month debt-service reserve and a first claim on cash flows. Covenants stipulated a cash flow coverage ratio of a minimum of 1.1 times and a gearing ratio maximum of 0.75 times.
On the equity side, for the three bidding consortia to each identify 51% Australian equity for such a large acquisition was always going to be a major challenge. One of the key deal innovations, which allowed Southern Cross to find additional sources of equity, was the use of the 10-year hybrid equity instrument ? Fliers.
Macquarie Equity Capital Markets and UBS Warburg jointly underwrote the BBB- rated (one notch rating differential on senior debt), $600 million issue. Fliers allowed the sponsors to leverage up and secure a larger bid price as the securities can be accounted for as Australian equity, thus helping the consortium to fulfil the government requirement that the airport be 51% Australian-owned. The public offering closed in early August and was significantly oversubscribed.
In October 2002, Southern Cross refinanced A$1.5 billion of the remaining senior secured debt through an MBIA-wrapped capital markets issue. Unlike the senior debt, the issue was not an easy sell despite the wrap. Pricing was postponed twice as investors took advantage of the volatility in the global equity markets to demand more generosity from the issuers. The A$640 million fixed and A$860 million floating rate notes were issued at tenors of five and 10 years. A third of investor demand came from offshore, 40% from conduits and the remainder from domestic investors.
Southern Cross Airports
Status: Final signing 11 October 2002
Description: Financing of Sydney Airports Corporation privatisation.
Sponsor: Southern Cross Airports which comprises Macquarie Airports (40%), Ferrovial Aeropuertos (20%), Hochtief AirPort (15%) Macquarie Airports Group (12%) Ontario Teachers' Fund (5%), Abbey National Treasury (5%). MTAA (2%), Macquarie Global Infrastructure Fund (1%)
Financial advisor to consortium: Macquarie
Divestor: Government of Australia
Financial advisor to divestor: Citigroup
Bank Debt: A$1.5 billion bridge facility, A$2.45 billion syndicated bank debt facility.
Mandated arrangers: Barclays Capital, Commonwealth Bank of Australia (CBA), Royal Bank of Scotland and SG;
Arrangers: Abbey National; Bank of America; BNP Paribas; Citibank; Credit Lyonnais; KfW; NordLB; WestLB; ANZ;
Bank of Tokyo-Mitsubishi; China Constuction Bank; Credit Agricole Indosuez; ICBC; National Australia Bank; Sumitomo Mitsui; Westpac
Counsel to the sponsors: Blake Dawson Waldron
Counsel to the lenders: Allens Arthur Robinson
Equity: A$2.015 billon
FLIERS (equity hybrid) underwriters: Macquarie; UBS Warburg
Bond debt: A$1.5 billion
Bookrunners: Barclays; CBA; Macquarie; SG
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