Peel Ports WBS

2012:

This extract is taken from 1 Feb 2013 issue the Banker magazine online (here)

Peel Ports [the UK’s second largest port owner, its operations include Glasgow’s Clydeport, Medway Ports, container terminals in Belfast and Dublin, and, the jewel in the crown, the combined Port of Liverpool and the Manchester Ship Canal.] refinanced its debt to the tune of £1.6bn ($2.54bn), via a whole business securitisation.

“Early on, the company looked at the bond markets and at private placement, and decided that it would get best execution from the private placement markets,” says Mr Ganguly [head of structured finance at Rothschild], adding that there were two very good reasons for focusing on the US private placement market. “It had a record year in 2012, so market conditions were excellent and therefore could deliver better pricing than the public markets. And the company felt that the private placement process would provide investors with more time to understand, assess and fully appreciate the Liverpool 2 project.” The financing structure allows public bonds, he says, so Peel Ports would certainly look to access the public markets as and when the market conditions are appropriate.

It was a matter of sequencing – do the private placement, giving the credit some limited exposure and then, with the project construction risk out of the way, go to the public bond markets. The results are ultimately the same, leading to more diversified, longer-term funding.

New market

The US market had invested in UK corporates before, principally utilities, but had not seen a UK non-utility whole business securitisation. “They had done ports, and they had done securitisations, but they had never done a port securitisation,” says Mr Ganguly.

While Peel Ports is a rare example of the breed, it is not the first. Back in 2001, PD Ports, owner of the UK ports of Tees and Hartlepool (Teesport), raised £305m via a whole business securitisation. Peel Ports issued its mandates in December 2011, just as ABP was completing its transaction. It wanted to refinance at least a year ahead of maturity. As long as its back was not against the wall, it could maintain some competitive tension among potential lenders. RBS had a key function as joint financial adviser as well as lender. While Rothschild claims responsibility for assembling the bank group and the swaps, the RBS role included that of sole ratings adviser and private placement agent.

The deal structure was finalised in March 2012, and was awarded two private investment grade ratings in April. Work had also started on securing cost-effective funding from the European Investment Bank (EIB), predicated on the fact that Liverpool 2 would promote “transport sustainability”. Apart from being cheap, EIB funding gives a credit a useful seal of approval.

Complex deal

After some discussion over the merits or otherwise of going out in the summer vacation period, the transaction went to the bank market in mid-July. “There was a very wide group of banks that expressed an interest,” says Mr Ganguly. “The company also had to source swap capacity at optimum price, so the choice of club members depended on the price not just of the loan but also of the swaps.”

The transaction was completed in December 2012. It involved the simultaneous raising of £1.06bn of bank debt from 11 club banks, a £150m loan from the EIB and £350m equivalent of private placement notes, with US dollar and UK sterling tranches ranging from seven to 25 years' maturity. To reduce refinancing risk, the maturity of the bank debt is staggered across three, five and seven years. The deal includes an embedded project finance facility for the new Liverpool container terminal. As law firm Linklaters noted, the transaction involved seven different legal jurisdictions and 12 law firms, with a complex two-day escrow process to coordinate the closing of all the debt sources and discharge of the existing debt.

“Over time, the funding structure will evolve more to the capital markets,” says Mr Ganguly. “The three-year debt can be taken out by bonds and the five-year by the US private placement market.”

While the existing swaps were subject to a mandatory break matching the maturity of the term debt, the company wished to keep them in place. “The banks were asked to take on a share of the swaps,” says Finula Cilliers, Rothschild’s head of derivatives advisory. “They have breaks at six, eight, 11 and 13 years, to achieve a balance between capacity and pricing. And while inflation swaps are typically all senior to bank debt and private placements in securitisation structures, these are a mixture of super senior and pari passu.” The banks agreed to hold their swap prices for the somewhat longer period needed for private placement due diligence.

Law firm Linklaters had this to say in their press release