Macquarie Corporate Finance USA, a New York-based division of Australia's Macquarie Bank, is seeking to acquire several U.S. electric transmission grids and will securitize these assets to finance the acquisitions. Tom Capasse, division director in the New York unit, declined to specify what companies will be acquired. Steve Fetter, the head of Fitch's global power group, says the purchase of transmission grid assets through securitization has never been done before.
Capasse says his bank has bid on five to eight transmission grid companies, representing a total of $1 billion of acquired assets. The acceptance of Macquarie's first bid may be imminent, he notes. But it may take six to 10 months between the time a bid is accepted and the time when which the assets are securitized in order to finance the purchases, he says.
Capasse says Macquarie is currently talking with Standard & Poor's about the potential ratings of the bonds. One option being considered would be the issuance of a series of triple-A through double-B rated bonds, using a special purpose vehicle. The bank is also negotiating with monoline insurance companies to see if wrapping the future debt makes sense.
A rating agency analyst says Macquarie is not alone in bidding for electrical transmission grids as other potential bidders include General Electric Capital, Deutsche Bank and CIBC.
Macquarie plans on securitizing the tariffs paid for the distribution of electricity as these assets represent a steady and predictable future cash flow stream, explains John Daly, another director with the bank. He adds that it makes sense to use securitization for leverage finance purposes, because "securitization allows more leverage at a lower cost."
Transmission grids are high-powered transmission lines allowing the transfer of electricity. An order issued by the Federal Energy Regulatory Commission had imposed a Dec. 15 deadline for utilities companies to sell their assets to independent transmission companies called Regional Transmission Organizations (RTOs). Even though the Dec. 15 deadline has just been postponed, this deregulation change is imminent as the commission wants utilities companies to quickly shift their focus from transmission to the generation of power and local distribution, explains Barbara Connor, a spokeswoman with the Washington-based FERC.
Macquarie is banking on these regulatory changes to push forward its buying spree of electrical transmission lines in the U.S., explains Capasse. One of the advantages of this strategy lies in the fact that utilities themselves are banned from bidding on those new RTOs, for deregulation purposes. The second one is the deadline pressure under which utilities companies are to sell those assets, he says.