And now for the hard part

And now for the hard part 2009-10-30 Philip Borel <P>Slaughter and May did the legals for Global Infrastructure</P> <P>Partners, and sent out its press release not once but twice. The second one read: “Please ignore the confidentiality banner on the previous e-mail. We would like this

Slaughter and May did the legals for Global Infrastructure

Partners, and sent out its press release not once but twice. The second one read: “Please ignore the confidentiality banner on the previous e-mail. We would like this deal to be publicised.” Normally Slaughter and May is one of London’s more reserved law firms, but on this show-stopper of a transaction, it too was determined to get its pound of flesh.
Is GIP’s £1.5 billion purchase of London Gatwick Airport the infrastructure deal of the year? It certainly ticks the requisite boxes. The auction was high profile right from the start and took what seemed like a lifetime to produce a winner. By the time it was all over, bidders including GIP had been in and out and back in again, and there were moments in between when any deal had looked elusive.
Finding a sufficiently large amount of financing given still testing conditions in the debt market was one of the bigger headaches.   In the end a banking consortium stepped up and committed £1 billion of capital to GIP’s bidco. It is worth citing the (predominantly European) lenders involved:   Banco Santander, Bayerische Landesbank, Calyon, Credit Suisse, Espirito Santo Investment, HSBC, JP Morgan, Royal Bank of Canada, The Royal Bank of Scotland, Société Générale, Sumitomo Mitsui Banking Corporation Europe and WestLB – 12 institutions whose appetite reflects the fact that even a large transaction, provided it is sensibly structured and involving an attractive asset, can still (or once again?) get funded.

The package for Gatwick is significant and could prove encouraging to others. “What this market needs more than anything right now is a deal,” a frustrated US infrastructure banker was overheard saying over lunch at our recent Infrastructure Investor: New York conference in late October (see page 14). Granted, Gatwick isn’t Midway – but if a spark was needed to ignite the global brownfield market, then maybe this was it. (For more on the state of the financing market in this edition, see page 22.)

To the new owners of Britain’s second-busiest airport, more deals won’t be the main priority right now. Bayo Ogunlesi and his men might have allowed themselves a moment to celebrate the ending of the hunt. But if it was difficult to get this far, the real graft is just about to start, and GIP will not be under any illusions about that. Gatwick is not only an airport with big operational shortcomings;

it is also a highly emotive asset and has many stakeholders taking a passionate interest in its future. (Among them, to give just one example, is Brendon Sewill, chairman of the Gatwick Area Conservation Campaign, who worries about “a faceless international consortium squeezing every pound it can out of the airport rather than addressing local worries”.) The media frenzy following the deal’s announcement on 21 October was a telling reminder of this.

Anyone can buy an asset – but can they make a return on it, Henry Kravis is fond of asking. Gatwick is the perfect test case for this axiom. GIP have got the skill set and the experience, and will have thought carefully about all the hard and soft issues that can impact their stewardship of Gatwick. But for this investment to take off, the firm will have to steer carefully. Some turbulence along the way is practically guaranteed.
Enjoy the issue,

Philip Borel