Bord Gáis gets €500m to refinance loan facility

STATE ENERGY company Bord Gáis has raised €500 million from a group of international banks to refinance some of its existing debt, the company confirmed yesterday.

Bord Gáis was known to have been in the process of borrowing the money for some time, and completed the deal ahead of the decision of ratings agency Moody’s to downgrade its credit rating last week.

Chief financial officer Michael O’Sullivan confirmed yesterday that Bord Gáis had raised a total of €500 million. The company will use the money to refinance an existing loan facility due to be repaid in February.

Mr O’Sullivan pointed out that refinancing exercises such as this are standard practice for utilities such as Bord Gáis.

He said that the State company originally sought €400 million, but the fundraising was oversubscribed and, as a result, it opted for the larger sum.

The company is paying a “modest premium” to the interest rate paid for similar loans by its European peers.

However, Mr O’Sullivan stressed it is paying lower interest than the spread between Government debt and German bonds, which was between 6.5 per cent and 7.5 per cent when it agreed terms with its lenders. He said the deal demonstrates investor confidence in Bord Gáis, its business and its financial strength.

Last week, Moody’s, which measures organisations’ ability to pay their debts, cut the rating of the company’s short-term debt to “prime three” from “prime two”, and that of its finance subsidiary to “Baa3” from “Baa1”.

The agency’s rating followed its move earlier in the week to lower the Republic’s rating to junk status. However, Bord Gáis’s debts are still rated as investment grade, which means that Moody’s believe the overall risk of it defaulting on its obligations is very low.

Mr O’Sullivan said that lowering its rating would mean higher finance costs. Every “notch” it is downgraded adds one-quarter of 1 per cent – €3.5 million – debt servicing costs.

While the company could absorb the higher costs associated with junk status, which Mr O’Sullivan calculated would be 0.3 per cent extra, he stressed that it was important to the group to retain its investor-grade ranking.

Junk status would also increase the cost of buying natural gas on international markets for the group. This would require it to produce various forms of collateral to satisfy sellers, and Mr O’Sullivan pointed out there is an “inherent cost” involved in that.

Bord Gáis supplies electricity and natural gas to businesses and homes in Ireland as well as operating natural gas supply networks.

It has about one million customers. The company has €1.8 billion in debt and a book value of €3.3 billion.