Infrastructure assets: Regulation, regulation, regulation
If any mistakes are to be made – either on the price paid for assets or the financing structure behind an investment – the sheer scale of activity in the UK regulated utilities sector means it is one place to start looking.
Behind infrastructure’s gold rush The £9 billion ($17 billion) buyout of BAA by Spain’s Ferrovial in March this year crystallized the changed attitude towards infrastructure among capital markets investors. Indeed, the deal took the market by surprise – particularly investors that had bought BAA’s €2.85 billion bond issue the week before Ferrovial revealed its hand. Several investors in that issue (which had no change of control clause) report that the company had dismissed any suggestion of a buyout during the roadshow, indicating that the company was simply too big to be bought out. Ferrovial’s move shows that in this credit environment no one is too big any more.
This is in no small part due to the kind of leverage multiples that infrastructure companies can now finance themselves at – the high teens. The BAA deal itself was predicated on a financing package that is a showcase for the changed appetite for utility-type regulated risk and the ability for this type of risk to be refinanced in the capital markets (see LBO sponsors look to ABS financing solutions, Euromoney October 2006).
“This was one of the largest LBOs ever and the largest non-investment grade deal ever done in Europe (at £2 billion),” says William Cumming, managing director at Citigroup.