• Refinancing of desalination plant concession
• Highlights the continued relevance of Australian banks as a refinancing option
• Cheap debt pricing for the strongest credits

The unwillingness of banks to lend beyond seven years has rarely been a drawback for sponsors in Australia. Infrastructure assets, particularly those with revenue risk, usually have enough financial headroom to accommodate any additional margin costs during a refinancing

Alinta Energy recently closed $1.07 billion 6-year US-placed B loan, though only after sweetening margins and offering soft call protection. AquaSure, the project company for the Victoria desalination plant, has completed a A$3.75 billion ($3.4 billion) bank refinancing and will complement that debt with both US and Australian bond issues.

In September, Hastings Fund Management and Ontario Teachers’ Pension Plan (OTPP) closed on the A$1.64 billion refinancing for the bank debt that they used to acquire the Sydney desalination plant. The sponsors closed the financing largely with the same club of banks that provided the initial acquisition financing in 2013, but at more competitive margins.

The financing illustrates that a new bank deal can often be as attractive an option as a capital markets or cross-border financing, because local lender appetite for mature brownfield assets is still high. Sponsors can turn to relationship lenders if the legal fees, cross-currency swap costs or time involved in issuing in the US markets prove excessive.

Even as Australia’s pipeline of greenfield and brownfield infrastructure assets starts to mature, sponsors have been able to close financings at more competitive margins, as competition among lenders slowly starts to pick up.

The Sydney refinancing replaces the debt facilities that the sponsors closed in June last year when they acquired the Kurnell water supply project in Sydney. The state of New South Wales developed and built the plant, and it entered operations in January 2010. In November 2011, the state government launched a tender for the long-term concession of the plant, which it described as a refinancing, though the transaction was essentially an asset monetisation.

The plant is located in Sydney’s southern suburbs and is designed to provide the city with a more reliable supply of water, following several years of drought around the turn of the century. It is one of the largest desalination plants in the world, with a nameplate capacity of 250 million litres per day, and can account for 15% of the Sydney region’s water supply.

Hastings and OTPP closed the A$1.64 billion refinancing with a club of 10 lenders – ANZ, BTMU, CBA, EDC, HSBC, Morgan Stanley, NAB, RBC, SMBC and Westpac. Out of the original cast of lenders, only Crédit Agricole pulled out, while BTMU was the only new lender to join during the refinancing.

The debt financing breaks down into a A$400 million 2-year term loan facility, priced at 120bp, a A$600 million 3-year term loan facility, which priced at 140bp, a A$600 million 5-year term loan facility, which priced at 170bp and a A$40 million 3-year working capital facility, which is also understood to have priced at less than 200bp.

The Sydney desalination plant features solid counterparty risk because the plant benefits from an availability-type payment structure. The offtaker is Sydney Water Corporation, a state-owned entity.

The short-term bank debt does not preclude a capital markets refinancing, but it allows the sponsors to be much more opportunistic. The sponsors may eventually follow Aquasure to the bond market, according to market rumour, although the deal shows how far banks will stretch themselves on pricing for worthwhile credits.