Powerco bucks trend in securing bank debt
Electricity and gas lines company Powerco seemed to be bucking the trend when it announced it was replacing a maturing bond sold to retail investors with bank debt.
Wednesday, December 8th 2010, 10:29PM
by Jenny Ruth
It plans to use the $100 million five-year revolving cash facility provided by Westpac and ANZ Bank to redeem its $100 million in bonds maturing on March 29 next year.
A long line of other companies, such as Goodman Fielder, APN News & Media, TrustPower, Infratil and Greenstone Energy, have been lining up to sell bonds to retail investors to reduce their reliance on banks.
For similar reasons, others such as Vector have been tapping the offshore investor market.
Insiders report a determination among corporates to never again be as vulnerable to banks as they were when the global financial crisis (GFC) hit.
Many corporates have also complained that, at a time when they're looking to lengthen the maturity of their debt, banks are reluctant to lend for more than three-year terms.
Powerco chief financial officer Dennis Martin says he can "understand where the other companies are coming from."
However, Powerco already has a significant amount of US private placement debt as well as a considerable New Zealand bond program.
When it asked the banks to say what interest rates they would provide either three or five-year funding at, their offers proved competitive, Martin says.
Powerco's attributes as an essential utility certainly helped - the company is New Zealand's second largest electricity utility with about 420,000 customers connected to its networks throughout provincial North Island.
As well, "we have long-standing relationship with our bankers and they've been very supportive of us all through the GFC."
"If it was a larger amount we possibly would have gone offshore."
Powerco aims to have a diversified mix of debt, Martin says. In addition to the bonds it will redeem next year, it has $330 million in listed bonds maturing between September 2012 and September 2017.
In September next year, Powerco has between $250 million and $300 million of bank debt maturing and, although Powerco will assess its options at the time, including a retail bond issue, if market conditions are similar to today's conditions, the likelihood is that will be refinanced in the US private placement market, he says.
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