The $440 million credit backing Kohlberg Kravis Roberts & Co. and Trimaran Capital Partners' $610 million acquisition of International Transmission Co. (ITC) from DTE Energy scored with investors because of its straightforward and stable business, according to Dean Kehler, a managing partner at Trimaran. The six-year credit blew out after launch, resulting in an increased "B" loan. Kehler said while other utilities are struggling, DTE and ITC are stable regulated entities. "DTE is actually one of the healthiest utilities in the United States," Kehler said, explaining that the company was not financially strapped and it did not need to divest ITC.
The sale of the transmission company asset was a result of the Michigan Public Service Commission and the Federal Energy Regulatory Commission's (FERC) recommendations to deregulate the electricity sector through separation of transmission from electric utilities businesses. "This is a regulated utility, a very low volatility sort of business. You'd expect it to go great," Kehler said of the credit. The CIBC World Markets-led facility includes a $185 million "B" loan and a $15 million revolver at the company level, while there is a $237 million "B" loan at the ITC Holdings level. The operating company loan is priced at LIBOR plus 21/2% based off of a grid, Kehler said. The holding company loan is priced at LIBOR plus 33/4%, according to a banker familiar with the deal.
"We tried to structure the deal based on the regulators' guidance," Kehler noted. He added that the transaction was completed in less than three months, which is relatively fast for a utility deal considering time needed for regulatory approval. "We really had our ducks in a row here," he noted. Both KKR and Trimaran have a long relationship with CIBC, Kehler said, noting that Trimaran grew out of CIBC some years ago. He added that CIBC has expertise in leveraged buyout electric utility financing. Union Bank of California and Société Générale signed on at the agent level. KKR and Trimaran put $216 million of equity into the acquisition, Kehler said.