Houston-based CenterPoint Energy has signed a $5 billion bridge loan to finance its acquisition of Vectren Corp.

CenterPoint is paying $72 a share for Vectren, resulting in an enterprise value for the combined company of $27 billion.

Goldman Sachs and Morgan Stanley are providing the $5 billion, 364-day senior unsecured bridge facility, according to an April 21 filing with the U.S. Securities and Exchange Commission.

The margin on the loan ranges from 100 to 200 basis points over Libor, depending on the company’s credit rating, and is  subject to an increase of 25 bps for every 90 day period that elapses after the merger closes.

The company intends to repay the bridge loan with the proceeds of one or more capital markets transactions, potentially including the issuance of debt, preferred shares and common equity.


Credit analysts have taken a dim view of CenterPoint's initial plan, which is for $3.5 billion of the long-term acquisition financing to be debt.

S&P Global Ratings, for instance, placed the company's A- rating on CreditWatch Negative, noting that it expects "that [CenterPoint's] financial measures will deteriorate from financing, including a disproportionate use of debt, to acquire Vectren," in a report on April 24.

"Vectren's low risk regulated gas and electric operations (80% of net income in 2017) in Indiana and Ohio will enhance [CenterPoint's] diversification and business risk profile," wrote analysts at Fitch Ratings as they revised the outlook on company's BBB rating down from positive to stable the same day. "However, the meaningful increase in leverage, relatively complex corporate structure and exposure to Vectren's power generation and non-utility operations, limit any upward migration of [CenterPoint's] ratings at this time."

A little later, Moody's Investors Service  changed the outlook on its Baa1 rating for the company down from stable to negative, which it said "primarily reflects the financing decisions associated with the acquisition."

Goldman Sachs advised CenterPoint Energy on the acquisition while Bank of America Merrill Lynch advised Vectren. Akin Gump Strauss Hauer & Feld and Bingham Greenbaum Doll served as legal counsel to CenterPoint Energy and Baker Botts as legal counsel to Vectren.

CenterPoint Energy will establish a chief business officer for Vectren's electric business, who will report directly to Prochazka and will spearhead southwestern Indiana's electric grid modernization and generation transition initiatives according to an announcement on April 23.

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