The F2i Reti Italia consortium – 75% owned by F2i, the equity fund of state postal savings company Cassa Depositi e Prestiti (CDP) and 25% by AXA Private Equity – has cut a swathe through the Italian gas network market by winning three auctions of assets in a row. The vendors in each case have divested assets to concentrate on their core business and deleverage their balance sheets, a Europe-wide phenomenon among utilities.

Following F2i Reti Italia’s investment in Enel Rete Gas in September 2009, and its recent acquisition of E.On Rete April 2011, the recent G6 acquisition from GDF Suez that closed in parallel to the refinancing reaffirms its position as the main independent operator in the Italian natural gas distribution market, with a 17% market share in terms of customers managed, and second only to the Eni group.

The Eu2.2 billion debt splits into a Eu1.865 billion seven-year acquisition fac­ility with an underlying tenor of 22 years, a Eu300 million working capital facility and a Eu35 million revolving credit facility. There is around Eu800 million of equity spread across the three businesses, which will be reverse merged into the Enel Rete business to form a single company that will be created by May 2012.

Despite the eurozone malaise, and in particular the September sovereign credit rating downgrade of Italy, banks kept to the margins agreed in late June and early July, despite the presence of a 75bp cap­ped price flex clause in the financing documentation. The pricing on the term loan starts at 240bp over Euribor, increasing evenly every two years to 375bp. Upfront fees are 200bp.

One additional bank, Centrobanca, join­ed the club in the days before financial close with a small Eu30 million ticket. The final 12-bank club comprises: Bank of America Merrill Lynch and UniCredit (both modelling banks), Credit Agricole and BancaIMI (documentation banks), HSBC (technical bank), ING, BNP Paribas, MPS, SG, Natixis, Mediobanca and Centrobanca.

The average debt service coverage ratio is 1.25x. Perhaps the most important ­metric, the net debt to regulated asset value (RAV), has not been disclosed but is thought to be in the region of 80%. Interest rate hedging on 75% of the debt will be in place before the end of October, with the sponsors accepting rate rise risk on 25% of the debt.

According to one source, had the banks been asked to sign commitment letters at the beginning of October the debt margins would have been some 100bp higher. As late as mid-July the sponsors were still considering a capital markets deal but the market proved very volatile over the summer months and they dropped the bond option.

The refinancing repays the bridge provided by BancaIMI and UniCredit supporting the Eu772 million ($676 million) G6 acquisition from GDF Suez and the two previous acquisition facilities. In June 2009, Enel reached an agreement on the sale of 80% of Enel Rete to F2i and AXA. In September 2009 the Eu1.025 billion ($1.54 ­billion) Enel Rete Gas refinancing closed. The Eu1.025 billion ENEL Rete financing was split into three five-year facilities – a Eu800 million acquisition facility, a Eu150 million capital expenditure facility and a Eu75 million revolving credit facility.

All three pieces were lead arranged by a club comprising Banca IMI, Mediocredito Centrale, Mediobanca – Banca di Credito Finanziario, Monte dei Paschi di Siena Banking Group, JP Morgan Chase, Calyon, Societe Generale, BNP Paribas, HSBC, Natixis and Banco Santander. The margin on the debt was 275bp over Euribor for years one to three, 325bp for years three to four and 425bp at year five. The upfront fee was 225bp. Minimum DSCR is 1.3x and debt-to-Ebitda under the base case is 4.8x.

The second business, E.ON Rete, was purchased with an enterprise value of Eu295 million, with Eu190 million in five-year acquisition debt that closed on 7 April 2011. The bank group providing the debt comprised Banca IMI, UniCredit, Credit Agricole, HSBC, SG and Santander. The average debt service coverage ratio is 1.25x and the debt margin begins at 225bp over Euribor for the first two years, before stepping up to 300bp. The upfront commitment fee is 200bp. The amortisation follows an underlying tenor of 23 years.

Drawdown of the refinancing facilities took place in full 4 October. The acquisition of the G6 gas network distribution assets from GDF Suez was also fully funded and completed on 3 October. GDF Suez named the F2i/AXA consortium preferred bidder for G6 on 6 June. The transaction values the distribution assets at Eu772 million, which amounts to 103% of the 2010 regulated asset base, 9.3x last year’s Ebitda and 17.5x its net income.

G6 Rete Gas operates 474 concessions and provides natural gas to about 990,000 customers across Italy (particularly in Puglia, which accounts for 32% of total customers), through a 15,159km grid.

The consortium intends to complete the acquisition of G6 Rete Gas through Enel Rete Gas, with the objective of making it own all the assets of the F2 Reti Italia group (a vehicle held by the consortium, which owns an 80% equity interest in Enel Rete Gas) in the gas distribution sector. Following the combination with E.On Rete and G6 Rete Gas, Enel Rete Gas will manage a pool of around 3.8 million customers, providing about 6 billion cubic meters per year through a grid of 53,000km. ■

F2i Reti Italia refinancing
Status: financial close 3 October, drawdown 4 October 2011
Description: A Eu2.2 billion debt package to refinance three Italian gas network businesses
Sponsors: F2i (75%) and AXA (25%)
Mandated lead arrangers: Bank of America Merrill Lynch and UniCredit (both modelling banks), Credit Agricole and BancaIMI (documentation banks), HSBC (technical bank), ING, BNP Paribas, MPS, SG, Natixis, Mediobanca and Centrobanca.
Sponsors’ legal counsel: Gianni, Origoni, Grippo & Partners and Ashurst
Lenders’ legal counsel: Linklaters
Technical adviser to sponsors: Arup
Technical adviser to lenders: Poyry
Insurance: Marsh
Due diligence: PwC
Model auditor: Deloitte