Following the Infranews event that we hosted at the end of February, this briefing examines the current state of the infrastructure market

Debt

  • The credit crunch continues to affect deals in the sector. Market conditions have deteriorated since we hosted the Infranews Conference in February.
  • With the monolines effectively sidelined, there is a greater focus on bank funding for infrastructure deals. On the £2.4bn FSTA Crown-backed PFI project, in which we were involved, the deal started as a wrapped bond issue. Ultimately, seven banks provided £2.2bn of senior debt funding at the end of March.
  • Banks still have the appetite to finance prime infrastructure assets, but increasingly on a club or pre-syndicated basis to reduce the underwriting risk. Upwards pressure continues on debt pricing for new deals.

Deals

  • M&A was slower in Q1 2008. However, the infrastructure sector is faring better than traditional private equity.
  • A significant 'quasi-infrastructure' deal was completed in March 2008: the acquisition of Welcome Break Group (UK motorway service stations) by a consortium of infrastructure investors (NIBC, ING and Challenger), for whom we acted.
  • There are some large deals in the pipeline: for example, UK train leasing companies. However, sellers' expectations have generally not yet re-aligned to reflect the market downturn and the credit crunch, which is affecting public M&A and delaying the start of auction processes.
  • Medium-term prospects continue to be underpinned by the need for investment in new infrastructure and more specific factors such as regulatory pressure to unbundle continental Europes energy assets.

Markets and players

  • North America remains very active, with projects often combining M&A and development activity (ie existing assets that are being sold and upgraded).
  • MENA continues to provide growth in greenfield projects and is a source of funds for external investments.
  • Sovereign wealth funds will continue to become more important players in the sector. Disclosure and political issues remain a key concern in the EU and the US, especially in regulated sectors.

UK take-privates

  • The UK Takeover Panel has announced that it is applying its pre-announcement secrecy rule more strictly. This reflects its frustration over the number of leaked bids.
  • Potential offerors, particularly those putting together consortia, are likely to need to approach the Panel earlier than before. This will not necessarily result in them being required to make an announcement.
  • In particular, they must consult the Panel before approaching more than six parties about an offer or possible offer. Advisers do not count towards the six, but the following, for example, do: potential providers of finance (whether equity or debt); potential consortium members; potential purchasers of assets; and rating agencies.
  • Waivers are likely only in limited circumstances and only when the Panel is satisfied that secrecy will be maintained. However, on recent consortium deals the Panel has not proved wholly inflexible (for example, it may be possible to substitute names on the six parties list); and these deals were done.

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