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Saturday, 21 October 2017

IFR Top 250 2007: Power plays

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Enel, Italy's largest power company, muscled its way to the forefront of both the European power markets and the syndicated loan market in Spring this year, with a €35bn loan that backed its bid for Endesa of Spain. Ouida Taaffe reports.

Enel, working with Acciona, a Spanish infrastructure and renewable energy group, snatched Endesa from under the nose of E.ON, the German power company that had been struggling for 18 months to overcome Spanish resistance to its bid.

E.ON opened its attempt to take over Endesa with an offer of €27bn, before that figure grew to €42.32bn over the course of more than a year. However, it finally settled for a stake worth €10bn in the Spanish utility, taking assets split between Spain, Italy and France.

What made E.ON, which had considered legal action against the Spanish authorities for stymieing its attempts to move into Spain, settle for less was stake-building by Enel. The Italian company had acquired control of nearly 25% of Endesa and, working together with Acciona which held 21%, was in a position to effectively block the E.ON bid.

Once it had secured Endesa, Enel secured the necessary financing. It mandated a €35bn loan to Mediobanca, UBS, Intesa Sanpaolo, UniCredit and Banco Santander, and seven banks joined as MLAs: BBVA, Credit Mutuel, Credit Suisse, Dresdner Kleinwort, Goldman Sachs, Morgan Stanley and RBS. In syndication the loan found a strong market reception with close to €40bn raised in the first round of syndication, even before all commitments were received.

The facility was broken down into three tranches. Tranche A is a €10bn one-year line with an 18-month term-out option. Tranche B is €15bn three-year line and tranche C is a €10bn five-year line.

The margins are tied to a ratings grid and the commitment fee is 20% of the applicable margin. There is a 22.5bp availability fee. Tranche A pays between 17.5bp over Euribor for A1/A+ or higher and 45bp over Euribor for Baa3/BBB– or below. Tranche B pays 22.5bp over Euribor at the top of the grid and 50bp over Euribor at the bottom, while tranche C ratchets between 27.5bp over Euribor and 55bp over Euribor.

Enel's long-term debt is rated A by Standard & Poor's having been cut from A+ following the Endesa acquisition. S&P notes that Enel remains on CreditWatch with negative implications until the final financing commitments, financial forecasts and structure following the Endesa acquisition become clear.

Even though Enel remains a solid credit, €35bn is clearly a great deal of money to raise in one market, and the main tranches include international sub-tranches that give international banks without an Italian presence an entrée to the deal. To refinance the loan Enel is issuing €5bn in bonds and increasing its medium term note exposure from €10bn to €25bn.

The disappointed suitor in the Endesa bid, E.ON, also tapped the loan market to back its bid, raising €37.1bn at the end of last year. Its facility was mandated to BNP Paribas, Citi, Deutsche Bank, HSBC, JPMorgan and RBS. That deal replaced an initial €32bn facility that needed boosting when Acciona took a 10% stake in Endesa. Relationship banks responded strongly to the renewed request, which was split between a one-year and a three-year tranche, paying 22.5bp over Euribor and 27.5bp over, respectively, both tied to a grid. Following the retreat from the bid, the loan was cancelled.

So have the power companies shown us the most pumped-up deal of the year? Since the Enel loan, the market has seen Porsche raise over €50bn, though some argue that given there was little danger of Porsche actually needing to draw its loan – raised as it was to back a low-ball, stock-market regulations-driven bid for VW stock – there is little comparison between the two facilities.

Given that, it looks as though the Enel deal may be one of the largest European loans of the year, although the power and infrastructure markets could still spring further surprises, and E.ON itself still enjoys low gearing and appetite to expand. E.ON has said that it could invest €60bn over the next four years and has set itself a net debt leverage target of three times operating profit, which equates to around €20bn of extra debt by the end of next year.

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