This RCF refinance solution has established a solid and appropriate banking relationship group which would work for the next five years to deliver the company’s strategy while at the same time ensuring they dislodged the very high margin costs they put in place in 2013, right in the middle of the financial crisis.
Photo of Colm Moriarty and Stephen Walshe, Electricity Supply Board.
Head of Group Treasury & Investor Relations
Group Funding Manager
The Electricity Supply Board, known for short as the ESB, is a state-owned electricity company in Ireland. While historically a monopoly, the ESB now operates as a commercial semi-state concern in a liberalised and competitive market.
The original Revolving Credit Facility (RCF) had been put in place right at the peak of the financial crisis and ESB were living with extremely high costs as a result. In addition, the five-year facility matured right in the middle of a triple-year (2017-2019) funding peak, which had arisen due to only shorter tenor bonds being available to peripheries like ESB during the crisis. The company was, therefore, faced with significant liquidity and rating risks.
“Our relationship banks were comfortable with the existing deal which had three years remaining; earning very attractive margins,” Cathal Marley, Head of Group Treasury and Investor Relations explained. “We had to work skilfully to achieve three things: amend the margins dramatically; extend the maturity to after the funding peaks; and maintain an appropriate mix of relationship banks to meet our future strategic requirements.”
How then did ESB manage to achieve these ambitious goals? First, the company brought in Rothschild as a high level adviser to confirm commercial terms and conditions being delivered in the market. However, ESB’s Group Treasury team structured, negotiated and closed the deal themselves. They went about the early refinancing of a €1.4bn revolving credit facility (RCF) through an amend-and-extend structure with 14 international banks. The banks participating in the syndicate were Barclays, BBVA, BNP Paribas, Danske Bank, RBC, RBS/Ulster Bank, J.P. Morgan, HSBC, Societe Generale, AIB, Bank of Ireland, Bank of Tokyo Mitsubishi, Intesa San Paolo and Santander. Meanwhile, RBS acted as co-ordinator for the transaction.
“This transaction represents a vote of confidence in ESB by the international banking sector,” Donal Flynn, ESB Finance Director commented at the time. “It ensures that ESB has access to the banking liquidity it needs into the next decade and will support its ongoing investment in Ireland’s energy infrastructure.”
Best practice and innovation:
The solution delivered an early amend-and-extend RCF refinancing on best practice market terms with an extended tenor to address liquidity risk. ESB took excellent advantage of the market environment to renegotiate a 5-year deal which had over three years to run. The deal was negotiated with 14 international Banks.
ESB negotiated margin pricing right down from the very high rates which were available in 2013 when the deal was originally transacted. As Marley recalls “this was no easy task as the banks knew that any reduction was positive for us so it was quite an achievement to deliver pricing to the commercial levels we did in the new deal.”
The deal proved extremely favourable to ESB in a number of respects:
Provides significant liquidity and credit rating security for a capital intensive business.
Extends facility maturity out to 2022 from 2018 (5+1+1) which is well past funding peaks in 2017-2019.
Amends margin pricing down from the high levels available in 2013 to the very edge of commercial terms available at end January 2015 (original deal transacted during the financial crisis).
Realigns the banking relationship group so that it is fit for purpose to meet ESB’s strategic requirements over the next 5 years.
The demonstrates excellence in building and managing banking relationships to deliver the final solution on pricing and tenor, while exiting two banks and bringing in another two (plus up-tiering of an existing bank) who were all more aligned with ESB’s future business needs. “ESB Treasury has been demonstrating excellence over the past number of years in extremely challenging circumstances,” adds Marley. “The refinancing of our RCF marked, what we consider, a landmark deal for us, in terms of establishing our commercial position in the financial markets going forward.”