Houston-based CenterPoint Energy has signed
a $5 billion bridge loan to finance its acquisition of
CenterPoint is paying $72 a share for Vectren, resulting in
an enterprise value for the combined company of $27
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
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.
'DISPROPORTIONATE USE OF DEBT'
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
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
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.