UIL Holdings to buy Philadelphia natgas utility for $1.86 billion
(Reuters) - UIL Holdings Corp (UIL.N) said it would buy Philadelphia Gas Works, the largest municipally owned natural gas utility in the United States, for $1.86 billion in cash to expand its natural gas distribution operations.
City officials will use the proceeds to prop up Philadelphia's grossly underfunded pension system, they said on Monday. The sale, which is the biggest transaction the city has ever conducted, must still be approved by the City Council and Pennsylvania utility regulators.
Philadelphia Gas Works, founded in 1836, manages a distribution system of about 6,000 miles of gas mains and service pipes supplying nearly 500,000 customers in Philadelphia.
The deal, which includes some liabilities of Philadelphia Gas Works, brings Connecticut-based UIL close to the gas-rich Marcellus and Utica shales.
Philadelphia Mayor Michael Nutter had been pushing for the sale of the 177-year-old utility since 2010, saying a sale would help the company discharge its liabilities and exploit its natural gas business.
After paying off PGW's bond obligations and putting aside funds for other liabilities, including reserve funds and PGW's own pension plan, Philadelphia will have between $424 million and $631 million to put into the city's retirement system.
The city's pension fund for firefighters, police and other public employees had $5 billion of unfunded liabilities as of July 1, 2012, and was funded at a paltry 48 percent. Eighty percent funded is considered healthy.
"UIL submitted the highest bid for PGW and agreed to contract terms that were important to the city," Nutter said in a statement.
Among those terms, the deal keeps rates frozen for three years and maintains discount programs for seniors and low-income families.
UIL said on Monday that it had secured a $1.9 billion loan from Morgan Stanley Senior Funding Inc to fund the deal. UIL anticipates closing by the first quarter of 2015.
Tudor, Pickering, Holt & Co was the lead financial adviser to UIL and Morgan Stanley was the financial adviser. Sullivan & Cromwell LLP served as UIL's legal counsel. Ballard Spahr LLP represented the city of Philadelphia in the transaction.
(Reporting by Sneha Banerjee in Bangalore and Hilary Russ in New York; Editing by Kirti Pandey and Phil Berlowitz)