Whole business securitizations have grown increasingly popular this year, but last week the use of that technology for the structured financing of a regulated U.K. water utility received an excellent response from market participants.
Dwr Cymru Financing priced GBP 2 billion of bonds via Schroder Salomon Smith Barney and Royal Bank of Scotland. Glas Cymru bought the Welsh water company from Western Power Distribution.
Glas Cymru is a non-profit making entity set up to remove the influence of shareholders. The real proof of the acceptance of this deal is that it was not a giveaway. Pricing came at the tight-end of expectations, yet the deal was heavily oversubscribed, attracting GBP 3.25 billion worth of demand.
The transaction was split into four tranches; A, B, C and D, rated triple-A, A3/A-/A-, Baa3 and BBB/BBB, respectively. The D portion was unrated. In total there were 12 portions, with the GBP 1 billion A tranche benefiting from a wrap from monoline insurer MBIA.
The credit-wrapped tranches were covered by GBP 1.7 billion worth of orders, said bankers at the leads. Of the five pieces the 27-year A1 fixed-rate piece uncovered the heaviest demand; unsurprisingly this was also priced at the tightest Libor spread, plus 33bp or 105bp over Gilts.
The A tranche also included five-year sterling and seven-year U.S. dollar floating-rate notes priced at 37.5 bp and 42bp, respectively. As a response to investor demand, two limited price indexed (LPI) bonds were sold alongside two notes linked to the rate of retail price inflation (RPI).
Inflation-linked bonds have a long track record in the U.K., but the LPI concept is fairly new. Basically, the coupon is linked to rises and falls in inflation between 5.0% and zero. In total GBP 485 billion worth of inflation- linked bonds were sold, up from an intended GBP 400 million.