Freight Corp
Australian Acquisition Deal of the Year 2002
National Rail and FreightCorp Privatization
As many that witnessed the UK rail sell-off in 1996 can attest to ? there is no gravy train like a train gravy train. Not so in Australia. The privatisation of National Rail and FreightCorp ? collectively 22% of Australian freight rail ? demonstrates a hardball attitude at government level with no attempt to provide transitionary support or pre-sale removal of any impediment to a straightforward sale. Simply put, investors were left to identify the risks and adjust to or accommodate them in the bid pricing.
The largest rail privatisation in Australia, and one of the first financings in Asia for a pure freight rolling stock operators, the deal is hailed by government and private sector as a major step in rail reform and is expected to catalyse a modal shift from road in the long haul freight market.
National Rail Consortium ? a 50/50 joint venture between Toll Holdings Limited and Patrick Corporation ? put in the A$1.2 billion ($732 million) winning bid on 21 January: A$615 million in non recourse debt and A$691 million in equity.
The A$615 million debt financing quickly followed, closing on 21 February 2002 (as did first drawdown) with syndication complete by May 22. The deal comprises a A$369.7 million five-year term loan; a A$145.3 million five-year standby facility; and a A$100 million five-year capital expenditure facility.
The successful bid had to overcome a number of complex financial hurdles inherited with the purchase: domestic and cross-border leases; restrictions on security; derivative exposures and contractual change of control left unresolved by the three governments (Commonwealth, NSW and Victoria) privatising the assets; and a portfolio of 144A debentures.
Around 15% of FreightCorp's fleet was financed under long term cross-border leases maturing in 2014-15. NSW intended to sub lease these to the purchaser which caused two main problems ? an absence of security over the assets and the possibility (however unlikely) of repossession by the lessor under the head lease.
Domestic leases added to the problems. Again lenders were faced with no security over the assets and the possibility of hefty termination payments.
Further headaches came from the existing 144A debentures ? $155 million were still outstanding at time of financial close. The debentures had covenants restricting the gearing of National rail and providing that the notes had to share rateability and pro rata in any security offered to other creditors of National Rail. Furthermore, lenders had to get comfortable with the fact that they were taking security over National Rail's assets and increasing the total level of debt without knowing how much of the debentures would still be outstanding post-sale.
In association with the US debenture issue National Rail had also entered into a cross currency swap hedge. But these could be exercised separately, leaving the investors with a potential $155 million unhedged.
Despite the problems, and there were many, the deal was 1.5 times oversubscribed post subunderwriting and was followed by a successful repurchase offer for National Rail's US$ notes.
National Rail and FreightCorp
Privatisation
Status: Closed February 2002
Toal cost: A$1.2 billion
Location: Australia
Description: Privatisation of 22% of Australian rail freight market.
Debt: A$615 million
Equity: A$691 million
Sponsors: Toll Holdings; Patrick Corporation
Financial advisers to government: Macquarie Bank; Credit Suisse First Boston
Financial adviser to the consortium: Citigroup
Lead arrangers: ANZ; Citigroup
Arrangers: NAB; BNP Paribas; CBA; WestLB; HypoVereinsbank; Bank of Scotland Australia; Westpac
Legal counsel to the government: Allens Arthur Robinson
Legal counsel to the sponsors: Clayton Utz
Legal counsel to the lenders: Mallesons Stephen Jaques
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National Rail and FreightCorp Privatization
As many that witnessed the UK rail sell-off in 1996 can attest to ? there is no gravy train like a train gravy train. Not so in Australia. The privatisation of National Rail and FreightCorp ? collectively 22% of Australian freight rail ? demonstrates a hardball attitude at government level with no attempt to provide transitionary support or pre-sale removal of any impediment to a straightforward sale. Simply put, investors were left to identify the risks and adjust to or accommodate them in the bid pricing.
The largest rail privatisation in Australia, and one of the first financings in Asia for a pure freight rolling stock operators, the deal is hailed by government and private sector as a major step in rail reform and is expected to catalyse a modal shift from road in the long haul freight market.
National Rail Consortium ? a 50/50 joint venture between Toll Holdings Limited and Patrick Corporation ? put in the A$1.2 billion ($732 million) winning bid on 21 January: A$615 million in non recourse debt and A$691 million in equity.
The A$615 million debt financing quickly followed, closing on 21 February 2002 (as did first drawdown) with syndication complete by May 22. The deal comprises a A$369.7 million five-year term loan; a A$145.3 million five-year standby facility; and a A$100 million five-year capital expenditure facility.
The successful bid had to overcome a number of complex financial hurdles inherited with the purchase: domestic and cross-border leases; restrictions on security; derivative exposures and contractual change of control left unresolved by the three governments (Commonwealth, NSW and Victoria) privatising the assets; and a portfolio of 144A debentures.
Around 15% of FreightCorp's fleet was financed under long term cross-border leases maturing in 2014-15. NSW intended to sub lease these to the purchaser which caused two main problems ? an absence of security over the assets and the possibility (however unlikely) of repossession by the lessor under the head lease.
Domestic leases added to the problems. Again lenders were faced with no security over the assets and the possibility of hefty termination payments.
Further headaches came from the existing 144A debentures ? $155 million were still outstanding at time of financial close. The debentures had covenants restricting the gearing of National rail and providing that the notes had to share rateability and pro rata in any security offered to other creditors of National Rail. Furthermore, lenders had to get comfortable with the fact that they were taking security over National Rail's assets and increasing the total level of debt without knowing how much of the debentures would still be outstanding post-sale.
In association with the US debenture issue National Rail had also entered into a cross currency swap hedge. But these could be exercised separately, leaving the investors with a potential $155 million unhedged.
Despite the problems, and there were many, the deal was 1.5 times oversubscribed post subunderwriting and was followed by a successful repurchase offer for National Rail's US$ notes.
National Rail and FreightCorp
Privatisation
Status: Closed February 2002
Toal cost: A$1.2 billion
Location: Australia
Description: Privatisation of 22% of Australian rail freight market.
Debt: A$615 million
Equity: A$691 million
Sponsors: Toll Holdings; Patrick Corporation
Financial advisers to government: Macquarie Bank; Credit Suisse First Boston
Financial adviser to the consortium: Citigroup
Lead arrangers: ANZ; Citigroup
Arrangers: NAB; BNP Paribas; CBA; WestLB; HypoVereinsbank; Bank of Scotland Australia; Westpac
Legal counsel to the government: Allens Arthur Robinson
Legal counsel to the sponsors: Clayton Utz
Legal counsel to the lenders: Mallesons Stephen Jaques
Back to contents
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