March 3 UIL Holdings Corp 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
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
Among those terms, the deal keeps rates frozen for three
years and maintains discount programs for seniors and low-income
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.