The loan backing the buyout of
Southern Water, which is the seventh-largest sewage and water company in England and Wales, was sold by RBS to the
The loan facility backing the buyout is believed to have a structure similar to that used in the purchase of Thames Water, with the addition of “a slight premium, reflecting market changes”. Given that the facility size is far removed from the £4bn raised for the Thames Water sale in 2006, the similarity may not be that strong, and the pricing changes may be more than cosmetic.
The final shape of the Southern Water deal may also have far-reaching effects for the financing of other infrastructure asset sales, notably those of
Infrastructure has the obvious lure of steady cash flows and long-term market predictability, which means that it will sustain relatively high leverage.
These factors, together with a super-liquid market, have meant that investors have been willing to lend a great deal to fund infrastructure take-overs. Easy liquidity has, however, largely evaporated – even for assets on which there is a great deal of visibility. The loan for Southern, therefore, could prove a new benchmark, both in terms of the relatively small sum lent and in terms of pricing.
The Thames Water loan in 2006, which was mandated to Barclays, Dresdner Kleinwort, HSBC and RBC, included senior opco tranches at a starting price of 40bp, senior holdco loans with pricing ranging between 110bp and 160bp and a seven-year junior holdco tranche starting at 375bp over Libor, moving up to 500bp in years six and seven
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