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Rare Issue To Hit U.K. Market For M&A Finance

A rare public finance issue is expected to hit the U.K. bond market next month to finance the acquisition of a gas pipeline connecting Scotland and Northern Ireland.

A rare public finance issue is expected to hit the U.K. bond market next month to finance the acquisition of a gas pipeline connecting Scotland and Northern Ireland. The deal will also be noteworthy as the European debut of Financial Guaranty Insurance Company U.K., a monoline planning to ramp up its overall bond guarantee activities.

Premier Transmission Holdings Limited, a newly formed company limited by guarantee (CLG), is expected to issue about £120 million in bonds to fund the acquisition of Premier Transmission Limited, the owner-operator of a 135 kilometer-long natural gas pipeline between Scotland and Northern Ireland.

CLGs are rare and bonds from them are even scarcer, with just two having come to market in recent years. Moyle Holdings issued £135 million of debt to purchase Moyle Interconnector, the electricity interconnector between Scotland and Northern Ireland, in April 2003; and before that Welsh water company Glas Cymru did a £2 billion deal in May 2001. Royal Bank of Scotland and Citigroup underwrote Glas Cymru, while RBS was sole underwriter on Moyle.

FGIC U.K. is planning to wrap the deal, which is expected to have a maturity of over 20 years and receive a single-A rating from Standard and Poor's and Moody's Investors Service, according to Tim Travers, FGIC U.K.'s ceo.

Premier Transmission Holdings is unusual in that it is 100% debt financed. It has no shareholders and no return on equity, being wholly owned by the government and gas consumers of Northern Ireland. The not-for-profit customer trust structure is somewhat akin to municipal deals in the U.S., according to FGIC's Travers. The aim of the structure is to reduce the business's cost of capital and reduce energy prices for the end-consumer.

Royal Bank of Canada and Barclays Capital have been pegged as underwriters on the upcoming Premier Transmission deal. The asset is being purchased from British Gas Group and Keyspan Energy Development Corporation, each a 50% shareholder in PTL. Christopher Carter, spokesman at BG Group, said it had been asked by The Northern Ireland Authority for Energy Regulation two years ago to consider selling the pipeline to a not-for-profit entity to deliver cost savings to customers. Still, while BG Group is actively pursuing the sale of PTL, no deal has been reached.

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