On 23 July last year, a four strong group of financial sponsors signed a Eu2.75 billion ($3.66 billion) financing for the acquisition of E.ON’s Open Grid gas network. This was the largest infrastructure acquisition financing to close in Europe last year and supported the acquisition of one of Germany’s largest energy infrastructure assets.

The sponsoring group comprises Macquarie European Infrastructure Fund 4 (22.5%), Infinity Investments (30%), a subsidiary of Abu Dhabi Investment Authority, British Columbia Investment Management Corporation (30%) and MEAG Munich Ergo Asset Management (17.5%), the investment management arm of Munich Re and Ergo, That the sponsors were able to raise such a large quantum of debt and from such a wide pool of international and local lenders is impressive, especially given the short-time frame in which the deal closed.

The 10,575km Open Grid network is the backbone of the German pipeline system, accounting for over 70% of total shipment volumes in Germany. It is an important part of Europe’s gas infrastructure network and serves as a hub for bulk gas shipments to Norway and Russia. The Open Grid network is operated under a perpetual licence, meaning there is no concession expiration date.

E.ON acquired the gas pipeline in 2003 and the following year set up a subsidiary, E.ON Ruhrgas, to operate the pipeline. To comply with European regulations, the Open Grid gas pipeline was fully unbundled in 2010 and established as an independent transmission operator. Following Germany’s decision to phase out its nuclear fleet, and pressure on utility balance sheets, E.ON set in motion plans to sell around Eu15 billion of assets.

E.ON has so far sold roughly Eu12 billion of assets, and the sale of Open Grid is the largest single disposal in this divestment programme. Although gas has run a poor second to coal in Europe in recent years, with several developers idling gas-fired capacity, the demand for gas is forecast to increase and will probably be an important part of Germany’s energy mix as it permanently retires nuclear plants.

E.ON launched the bidding process for the sale of Open Grid early last year and shortlisted four bidders in February. The four bidders were CNP Assurances and IFM Australian Infrastructure Fund; Fluxys, Global Infrastructure Partners, and Caisse de Depot et Placement du Quebec; Allianz, Canadian Pension Plan and Gasunie; and the Macquarie-led consortium.

The four bidders put forward indicative offers in April, before submitting binding offers on 9 May. E.ON picked the Macquarie-led consortium as preferred bidder in May. The Macquarie-led consortium is rumoured to have offered the best price and also had the largest pool of lenders supporting the deal, with nine banks underwriting the transaction at the bidding stage.

The deal closed in July last year after receiving regulatory approval from the relevant national and European authorities. The deal closed through Eu2.75 billion in debt, split between a Eu1.1 billion 3-year acquisition facility, a Eu1.1 billion 5-year acquisition facility, a Eu100 million 5-year revolving credit facility and a 5-year Eu450 million capital expenditure facility. The financing is then rounded off with about Eu600 million in equity.

Joining the nine lenders that underwrote the transaction – BNP Paribas, Commerzbank, Credit Agricole, Export Development Canada, ING, RBC, Scotiabank, Societe Generale and UniCredit – were another nine lenders during syndication. CIBC, HSH Nordbank and SEB were the first to join during a soft sell-down, since they were supporting Macquarie’s bid but could not obtain credit approval in time.

BTMU, Prudential Capital and SMBC came in shortly before financial close, and three more banks – Emirates NBD, NordLB and Siemens Bank – shortly after financial close. The last three lenders joined later because they had not been supporting another consortium, unlike the previous three lenders, and needed extra time to obtain credit approval.

The pricing on the 3-year acquisition tranche is understood to start at 125bp and then rises until maturity in a series of step-ups. The pricing on the 5-year acquisition facility starts at roughly 175bp and also steps up over time. Both facilities have a bullet repayment at maturity and the 5-year term loan features a series of cash sweeps to encourage a refinancing.

The sponsors have already held talks with lenders about an early refinancing of the 3-year facility and are rumoured to be looking at either a public bond or private placement. The sponsors made sure to structure the deal to support a BBB/BBB+ investment grade rating in order to facilitate a long-term capital markets refinancing.

The sponsors had considered financing the initial acquisition partly through a bond issue, but in the end settled on a short-term bank deal partly because of the advantages in terms of pricing. Open Grid is considered a stable asset with natural monopolistic characteristics, which explains lender enthusiasm for such a large deal. 

Open Grid Europe
STATUS
Financial close 23 July 2012
SIZE
Eu3.35 billion
DESCRIPTION
Financing for the acquisition of Germany’s 10,575km Open Grid natural gas pipeline
SPONSORS
Macquarie European Infrastructure Fund 4 (22.5%), Infinity Investments (30%), British Columbia Investment Management Corporation (30%), MEAG Munich Ergo Asset Management (17.5%)
SELLER
E.ONMLAS
BNP Paribas, Commerzbank, Credit Agricole, Export Development Canada, ING, RBC, Societe Generale, Scotiabank, UniCredit, BTMU, CIBC, Emirates NBD, HSH Nordbank, NordLB, Prudential, SMBC, SEB, Siemens Bank
PURCHASER’S FINANCIAL ADVISER
Macquarie Capital, RBC
PURCHASTER’S LEGAL ADVISER
Linklaters
LENDERS’ LEGAL ADVISER
Clifford Chance
TAX ADVISER
Ernst & Young
REGULATORY ADVISER
BET
TECHNICAL & ENVIRONMENTAL ADVISER
Arup
INSURANCE ADVISER
Marsh