Energy finance house of the year

Winner: ABN Amro

These are testing times for energy company financing. Some US power producers that avoided bankruptcy in 2003 by refinancing debt, for example, could still struggle to survive over the next decade as $65 billion of loans come due, according to a report released by Standard & Poor’s last month.

But Dutch bank ABN Amro is hoping that it will be able to stave off bankruptcy for its clients through the utilisation of innovative financing arrangements.

ABN’s integrated energy team has had a busy year, both on the project finance, mergers and acquisitions and bond issuance side. The bank boasts an impressive list of deals completed this year and it doesn’t look like the business is going to dry up any time soon. In fact, according to Fiona Paulus, London-based global head of integrated energy, the bank is adding resources, particularly in Houston and Singapore. “Unlike some of our competitors, who fled from the US market following Enron, we have stayed with our clients through good and bad,” Paulus says. “We are not a fair-weather bank.”

ABN’s deals are too numerous to mention in full, but some of them have stood out from the crowd. In December 2003, Reliant Energy Resources completed the sale of its European business, Reliant Energy Europe, to NV Nuon, a supplier and distributor of electricity, gas and water based in the Netherlands. ABN acted as join financial adviser to Reliant in what proved to be one of the most important deals of the year. John Martin, London-based managing director with ABN, points out that the sale allowed Reliant to avoid bankruptcy. “It was a unique transaction that met our client’s needs at a difficult time,” Martin says.

Reliant Energy Europe is one of the four large-scale electricity generation companies in the Netherlands, operating 13 plants with a total of around 3,500 megawatts of generating capacity as well as trading and marketing operations. The sale was valued at about e1.2 billion and involved a cash payment of around e1.1 billion; payment was contingent on proceeds from Reliant’s interest in NEA, the former coordinating entity of the Dutch generation sector. The completion of the transaction allowed Reliant Resources to reduce overall debt levels and focus on its core US generation assets, Martin adds, and this backward integration allowed Nuon to hedge its supply position, significantly improving both its operating margins and business risk profile.

Also last year, ABN acted as the sole financial adviser in what proved to be one of the largest European upstream deals. On May 27, 2003, Gaz de France completed the acquisition of the exploration-production, transmission and storage assets, and the natural gas marketing activities, of Preussag Energie, a subsidiary of German tourism and mining conglomerate TUI, for approximately €1 billion.

Meanwhile, in June 2003, ABN acted as joint bookrunner for Netherlands-based Essent in one of the largest bond issuances of the year. Essent launched its inaugural Eurobond transaction with a maturity of 10 years and an amount of €1 billion, which it says is priced at 85 basis points over mid-swaps, giving a re-offering yield of 4.55%. Essent says demand for the issue was very strong, with an order book of €3.4 billion and more than 200 investors. The company says it will use the proceeds of the issue to refinance existing short-term debt, improving the group’s debt maturity profile.

And ABN has also benefited from being able to tie over-the-counter commodity hedges into financing arrangements, according to Hugo Peek, London-based global co-head of power and utilities. In 2003 ABN launched an OTC gas and oil desk, headed by Brian de Clare. And project financiers at the bank say this in-house capability sets it apart from many competitors who do not have the same resources.

What’s more, ABN is also leading the way when it comes to tying in weather hedges into project finance deals for wind farms, Paulus adds. Until recently, wind-yield risk – the risk that investors might be reluctant to lend during a year of low wind yield – was often poorly dealt with. But ABN, through its well established Amsterdam-based weather desk, is looking to correct this oversight.

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