Sunday, 16 December 2018


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La Grande Snam: Italian gas distributor Snam’s demerger from Eni was backed by one of the largest European event-driven loans of 2012. For astute market read and flawless execution against the backdrop economic crisis in Southern Europe, Snam’s €11bn demerger loan is IFR’s EMEA Loan of the Year. 

At any other time a large financing for a major European regulated gas grid operator would be a no-brainer. But Europe’s sovereign debt crisis, which had a particularly severe impact southern Europe, made the financing of the demerger of Snam from Eni a far trickier proposition.

Italy approved the demerger in May 2012 to help boost competition in the Italian energy market, establishing a European gas transport champion. Snam needed to raise funds to repay around €11.5bn of loans from Eni and establish its own financial independence.

With Southern Europe suffering one of the worst economic crises in recent history, many international banks were wary of Italian risk and the borrower’s ability to secure a swift bond market take-out. In addition, as a debut borrower Snam had neither a pre-existing relationship bank group to leverage for commitments, nor existing documentation to use as a starting point for the new loan. With the financing having a targeted close before August, time pressure also posed a significant challenge.

Snam sought to raise an €11bn underwritten financing from a group of local and international banks, plus an additional €6bn, including funding from the European Investment Bank, CDP and €3.5bn of bilateral loans from the banks. 

Four co-ordinating banks – JP Morgan, Banca IMI, BNP Paribas and UniCredit – were appointed to manage the deal, comprising a €6bn one-year bridge to bond facility, a €2bn, three-year revolver, a €1.5bn five-year revolver and a €1.5bn five-year term loan.

Pricing on the loan reflected a premium for Italian risk and the need to get local banks on board. It started at 225bp on the bridge loan, while the revolvers and term loan paid an initial 250bp, 275bp and 325bp, respectively, depending on rating.

The bridge loan also featured pricing step-ups to encourage early repayment of 25bp per quarter after the first six-months, while a 10bp duration fee was also payable after 15 months. The bridge loan could be extended twice by six months for a 10bp extension fees.

Importantly, the loans were structured with a dual-law structure. Under Italian law, eurozone banks were able to pledge the loans as assets to the ECB, while non-eurozone banks required English law to take the transaction through increasingly vigilant credit committees.

The underwriting mandate for the €11bn loan was signed on June 7 with a select group of bookrunners – Bank of America Merrill Lynch, BNP Paribas, Citigroup, HSBC, Intesa Sanpaolo, JP Morgan, Mediobanca, Morgan Stanley, Societe Generale, UBS and UniCredit.

After Snam had obtained ratings (Baa1/A–) on June 13, a two-phase syndication was launched to reduce the size of underwriting banks’ heavy-lift commitments. The early-bird phase saw Bank of Tokyo-Mitsubishi UFJ, Barclays, Mizuho and SMBC join as mandated lead arrangers, while the second phase saw four more banks join.

During syndication Snam successfully completed two €1bn bond issues, reducing the size of the bridge loan to €4bn. The loan was finally signed, on schedule, on July 24 for a reduced €9bn, after raising a 25% oversubscription.

“Ancillary business was a real driver, but the borrower wanted to create and manage a proper relationship with the bank group,” said Charlotte Conlan, BNP Paribas’ head of loan origination and sales, EMEA. “They wanted to make sure there was enough ancillary to hand out.”

In September Snam further reduced the bridge loan when it placed €2.5bn of bonds, finally completing the refinancing of the bridge in November by issuing a €1.5bn bond. With the bond financing in place, Snam had successfully secured its financial needs until 2015.

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