REFILE-Utility securitisation moves to Europe
* Finnish electricity transmission deal can show the way
By Anil Mayre
LONDON, Dec 9 (IFR) - (This story first appeared in the December 7 edition of IFR, a Thomson Reuters publication - www.ifre.com/) A rare euro-denominated whole business-style securitisation from Finland hit the market last week, and could show that this secured technology need not remain the preserve of the UK market for utility financing.
Utility securitisation is commonplace in the UK, but that market is at least 10 years ahead of the so-called unbundling of entities from their owners. Some of the biggest WBS deals done in the UK were on the back of acquisition financings. The Welsh Water deal, for example, established a template in 2001, while airports have also been funded in a similar fashion.
There have been whole business deals of sorts in Europe before, stretching way back to the likes of Tenovis (German office telephony lease contracts) and Tornator (Finnish forestry receivables) more than a decade ago. But European utilities tend to fund through their parent companies on a standalone basis.
This deal could change that, showing how security packages can protect investors and allow rating uplift versus a straight corporate deal.
S&P rates the Elenia Finance Oyj deal Triple B from a new EUR3bn programme, which is backed by operating cashflow from Elenia Oy, the regulated electricity distribution business, and Elenia Lampo, the district heating business.
The agency, however, does not assess it as pure WBS. Instead, it uses its criteria for pre-insolvency structural protections, because of the lack of legal and structural features that ensure continued control for secured creditors should Elenia become insolvent. This differs from the UK, where deals can be rated through the insolvency of the operating company.
Investors are protected, nonetheless, by a covenant package, liquidity structure (12 months of liquidity support) and the pledge of nearly all the company's assets as collateral.
There are also two levels of financial covenants (triggers and event of default) linked to interest coverage and leverage levels and general default provisions, and an automatic standstill period after an event of default to grant the company time to find a solution rather than putting it into administration.
S&P says Elenia has an "excellent business profile" with the fully regulated electricity distribution business accounting for 85% of group Ebitda.
The agency considers the "Finnish regulatory framework for electricity distribution companies to be well established, predictable, and supportive". And predictability of cashflow is key for any securitisation. DEFENSIVE MEASURE Furthermore, the district heating business is run as a natural monopoly. Assets are also ring-fenced, allowing for the separation of the creditworthiness of the business from its parent company group. This security package is extensive, S&P says, but is essentially viewed as a defensive measure in that it prevents other parties taking security over the same assets. Under Finnish rules there is no restriction on pledging regulated assets.
Despite this safety net for investors, S&P does raise concerns about the overall level of debt. S&P expects adjusted funds from operations to ease to 7% over the next few years from 10% in 2014, due to the 100% debt-funded nature of the programme.
The Elenia electricity business was sold by Vattenfall in January 2012 to the Lakeside Networks Investment consortium comprising 3i, Goldman Sachs Infrastructure Partners and Ilmarinen Mutual Pension Insurance.
It was completed as a EUR1.5bn deal, with five-year financing from 10 banks. Four of those are leads on the new deal. Elenia roadshows end this Monday through arrangers HSBC and RBS, and joint leads Credit Agricole-CIB and RBC. S&P outlined a EUR500m series 2013-1 issue in its report. (Reporting by Anil Mayre, editing by John Mastrini)
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