European Transmission Deal of the Year 2013: Greater Gabbard OFTO
The £317 million ($517 million) acquisition by Balfour Beatty, AMP Capital and Equitix of the Greater Gabbard offshore transmission project marked a number of firsts. It is the first offshore transmission project to be funded through the capital markets, and the first UK project to use project bond credit enhancement (PBCE) from the European Investment Bank (EIB). With the UK planning to bring about 16GW of offshore wind into operation by 2020, the deal sets a useful precedent for future OFTO financings.
Greater Gabbard OFTO plc |
Status |
Closed 26 November 2013 |
Size |
£317 million |
Description |
Bond financing for the acquisition of high voltage subsea transmission cable connecting the 504MW Greater Gabbard wind farm to the UKs national grid. |
Sponsors |
Balfour Beatty, Equitix, AMP |
Sellers |
SSE and RWE |
Grantor |
Ofgem |
Arranger and hedge provider |
HSBC |
Joint Bookrunners |
HSBC, Banco Santander |
Bond trustee |
Deutsche |
Borrower legal counsel |
Allen & Overy |
Bookrunner legal counsel |
Pinsent Masons |
Seller legal counsel |
Linklaters |
Trustee legal counsel |
K&L Gates |
Sponsor financial advisers |
PwC and Investec |
Grantor financial advisers |
KPMG and RBC |
Model auditor |
Operis |
Under European unbundling directives, the transmission assets must be transferred from the wind farm developer to an independent operator. The buying consortiums special purpose vehicle, Greater Gabbard OFTO, issued £305.14 million in senior secured bonds to help finance the acquisition of the wind farm assets on 26 November 2013.
The bonds maturity is November 2032, and their weighted average life is around 12 years. The bonds benefit from an unconditional letter of credit from the EIB, under which the EIB will guarantee 15% of outstanding principal. Moody's rates the bonds A3.
The amortising bonds priced at 125bp over the 5% 2025 Gilt for an all-in coupon of 4.137% paid semi-annually, and attracted a 3x oversubscription. The deal launched at 130bp over, but after attracting £800 million of orders, the leads tightened guidance to 125bp-130bp. Even at the lower end of that range, the leads pulled in £850 million in orders. The bonds were placed with UK fund managers (78%) and UK insurance companies and pension funds (22%).
The sponsor consortium contributed equity in the form of subordinated shareholder loan notes, and its holding companies for the assets are Balfour Beatty OFTO Holdings, Equitix Capital Eurobond 2 and AMP Capital Strategic Infrastructure Trust of Europe. Each member of the consortium provided one third of the required equity of £46 million. HSBC is also providing a revenue swap a type of inflation hedge on 64% of the bonds, because all of the projects revenues during its 20-year revenue entitlement are linked to the UKs retail price index.
The deal may well set a template for future OFTO financings in the UK. The high level of interest from institutional investors and funds suggests that these sources of capital are growing increasingly comfortable with the renewables asset class, and with UK offshore in particular. This bodes well for the next stage of the UKs offshore wind development, Round Three.
The bond financing for the Greater Gabbard OFTO was the second deal to close in 2013 using the EIBs PBCE. The first, the Castor gas storage project, featured an asset that was also located under the sea, and arguably had a more complicated technical risk profile. Seismic activity has delayed final acceptance at Castor, making the refinancing an inauspicious debut for the PBCE, and a lucky break for the projects construction lenders.
The two deals have varying degrees of construction risk, and neither feature demand risk. The challenge for the EIB will be to show that the product can accommodate both construction and demand risk. As it stands, Greater Gabbard, rather than Castor, now looks like definitive proof of the enhancement template.
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