Powerco looks to raise about US$250 million in the US private placement debt market

By Gareth Vaughan

Electricity and natural gas distributor Powerco looks set to become the latest kiwi corporate to tap the United States private placement debt market after holding a roadshow with potential investors last week.

An offer that's expected to be worth about US$200 million to US$250 million (NZ$251 million to NZ$314 million), is being managed by Westpac Institutional Bank, Bank of America, ANZ, Merrill Lynch and JP Morgan. Powerco is expected to seek bids from investors before the end of the month, interest.co.nz understands, as it looks to refinance bank debt.

The company has a NZ$245 million term loan facility provided jointly and in equal proportions by ANZ and Westpac due to mature on September 21 this year. Powerco, which has a BBB credit rating from Standard & Poor's, is 58% owned by funds managed by QIC Limited and 42% owned by Brookfield Infrastructure Partners L.P.

It won't be the first time Powerco has raised debt in the US private placement market. Its last annual report shows NZ$289.2 million of debt raised through that market outstanding at June 30 last year following an issue on November 25, 2003.

In three tranches, an 11 year issue with NZ$94.2 million outstanding as of June 30 last year pays interest of 5.47% per annum and is due to expire on November 25, 2014, NZ$90.8 million in a 12 year issue paying 5.57% is due to expire on November 25, 2015, and NZ$109.3 million of 13 year money paying 5.67% per annum is due to mature on November 25, 2016. The notes are secured against Powerco's network assets.

Powerco's plans to raise funds in the US private placement market comes after Transpower, Vector, Auckland International Airport and Mighty River Power, combined, raised about US$682 million in the US private placement market between September and December last year.

Kiwi corporates are being enticed by the US private placement market by cheap borrowing costs and the long durations of the loans. US debt investors face an extended period of near zero official interest rates as the Federal Reserve pursues Quantitative Easing to devalue the US dollar and try and kick start the troubled US economy. This is encouraging them to invest in corporate and government debt in non-US dollar currencies with higher interest rates. New Zealand's Official Cash Rate is currently 2.5%.

Auckland International Airport's US$150 million of borrowing from the US private placement market, in three US$50 million tranches of 10 year, 12 year and 10 year money, was swapped into New Zealand dollars at New Zealand three month bank bills plus 2.145%, 2.078% and 2.268% respectively. The three tranches have a 4.42% coupon 10 year note and a 4.57% coupon 12 year note, both drawn in February, with a 4.67% coupon 10 year note to be drawn in July this year.

This article was first published in our email for paid subscribers this morning. See here for more details and to subscribe.