In the first ports deal to secure finance from the bond market, Associated British Ports (ABP) has refinanced its senior debt with the support of Lloyds Bank.

The UK port industry is the largest of its kind in Europe and of strategic importance to the country’s global economic competitiveness, handling approximately 95% of its imports and exports by volume.

Ports operate as independent enterprises, free from Government support since the Transport Act of 1981, which facilitated privatisation of the sector. Groups in the industry are consistently investing in best-in-class facilities, particularly in the container and roll-on roll off passenger arenas, to aid business expansion, drive efficiencies and meet increasing customer demand.

Recent limited domestic growth has led many UK businesses to refocus operations on exports to high growth economies, while the weakened sterling has seen more overseas companies importing from the UK, driving demand and investment in the freight sector.

To enable regular capital expenditure whilst ensuring firms’ growth plans can be realised, it is essential that UK port organisations have access to funding packages which correspond with their revenue patterns and, increasingly, offer a diverse range of financing sources.

Lloyds Bank has made a strong commitment to the ports sector and wider UK infrastructure in recent years, funding a number of the country’s major harbour operators and acting as Mandated Lead Arranger, Bookrunner and Hedge provider on all six rolling stock company (ROSCO ) transactions over the last two years.

Successfully testing the funding waters

Associated British Ports (ABP), the owner of 21 ports in England, Scotland and Wales, is the most recent industry operator to refinance its senior debt with the support of Lloyds Bank, in the first ports deal to secure finance from the bond market.

The group handles approximately a quarter of the UK’s seaborne trade, and its ports – alongside its other transport-related businesses – form a network capable of handling a diverse range of cargo.

Founded in 1962 as a Government-owned body, ABP became a public limited company in 1983, quoted on the London Stock Exchange. The firm was acquired in 2006 by the Admiral  consortium, comprising Borealis Infrastructure Management Inc. and Goldman Sachs International, in a public-to-private transaction, supported with debt financing from Lloyds Bank.

In order to re-align its capital structure with its updated business model and revenue streams, and diversify its sources of funding, ABP sought to refinance its  existing senior facilities. Following a competitive process, Lloyds Bank was selected as Mandated Lead Arranger on the £2.36bn debt refinancing of ABP.

Setting sail for expansion

Lloyds Bank provided ABP with a wide spectrum of financing products, acting as Mandated Lead Arranger on a £1.86bn package of senior debt, comprising bridge-to-bond (B2B) and term facilities, and as joint Active Bookrunner on a successful £500m bond issuance, which closed in December 2011.

Alongside its strong existing relationship with the company, Lloyds Bank was able to demonstrate its market-leading position in the UK transport infrastructure sector, having successfully secured debut bond issuances for all three ROSCOs in recent years, as well as being the current lender to a number of UK port operators.

The refinancing of ABP drew on the wider expertise of Lloyds Bank, including Debt Capital Markets as Active Bookrunner on the sterling bond issuance, Risk Management as Sole Hedging Bank Coordinator and Execution Bank, Syndication to underwrite the B2B facility and Structured Transaction Management, which provided the liquidity package.

The deal delivered the first port group bond issuance of significant scale against a highly challenging economic backdrop and demonstrating Lloyds Bank’s ability to effectively lead a group of lenders as swap bank coordinator to achieve the optimum hedging strategy for ABP. The deal has seen the group reduce its banking club from 20 to 11 lenders, whilst diversifying its sources of funding to ensure a more robust capital structure. The funding package is now better suited to its ongoing growth strategy.

Viewpoints

Mike Chappell, Head of Project Finance, Europe, at Lloyds Bank, said: “We are delighted to have had the opportunity to support ABP in their refinancing; recognising the importance of the ports sector in supporting UK infrastructure and economic recovery. This is an excellent example of Lloyds Bank supporting its core customers through the cycle.”

Farouk Ramzan, Head of Corporate Debt Capital Markets, Lloyds Bank concluded: “This refinancing is significant for ABP and the ports industry more broadly. In the future we expect to see other major infrastructure players looking to follow suit and tap the bond markets as a means of diversifying their funding.”

On the decision to work in partnership with Lloyds Bank, Sebastian Bull, CFO of ABP, commented: “We appointed Lloyds Bank because of the Bank’s excellent track record with ABP. Having acted on the original acquisition in 2006, it really understands our business and shares our ambitions for it.”

Outlining what the refinancing means for ABP, Sebastian Bull added: “We now have a long term capital structure to match our business model and support our contracts and revenue streams. We have successfully diversified our funding and consolidated our key banking relationships to 11 from over 40.”