Balfour Beatty, AMP, Equitix consortium in £304m bond issue

Greater Gabbard is the first EIB credit-enhanced offshore electricity transmission project to receive a public rating in the UK.

Greater Gabbard OFTO, a UK offshore wind transmission owner and operator, is to issue £304 million (€363 million; $491 million) in senior secured bonds.

The proceeds of the transaction will be used to acquire the transmission assets, located in the south-east of England, that will connect the Greater Gabbard wind farm to the onshore transmission network. Comprised of 140 turbines, the power plant has a generation capacity of 504 megawatts (MW).

Greater Gabbard OFTO was the largest in the first round of tenders conducted since 2009 by the Office of Gas and Electricity Markets (Ofgem), the UK energy regulator, to transfer ownership of offshore wind transmission assets from wind farm developers to independent operators.

It is sponsored by Green Energy Transmission, a consortium comprised of Balfour Beatty Infrastructure Investments, AMP Capital, and Equitix. The consortium’s members, which each hold a one-third stake in Greater Gabbard OFTO, were chosen as preferred bidders in 2011.

Greater Gabbard is also the first UK offshore electricity transmission project that benefits from the European Investment Bank’s project bond credit enhancement initiative to receive a public rating.

Moody’s awarded a provisional A3 rating – equivalent to upper-medium grade in the agency’s terminology – to the bond issue yesterday, underlining the project’s stable projected cash flows and the proven track record of counterparties involved in the operation and maintenance of the assets.

Greater Gabbard OFTO will operate under a perpetual licence with a 20-year revenue entitlement period awarded by Ofgem, under which it will receive an inflation-linked, availability-based revenue stream.

The presence of the EIB’s credit enhancement facility allowed the bond issue to benefit from a one notch uplift, Moody’s said. This on-demand letter of credit is available to Greater Gabbard to meet ongoing payments where needed, and can be drawn in full to compensate senior lenders against negative events, improving their recovery prospects. It is worth 15 percent of the initial bond issue’s outstanding principal.

The Europe 2020 Project Bond Initiative was launched in 2012 to bolster the capital markets contribution to project financing, with a view to plug the gap left by retreating banks. The pilot phase, which benefits from €230 million from the EU budget, intends to catalyse more than €4 billion in capital market financing for European transport and energy investment.

Nine projects eligible for bond credit enhancement have been so far approved by the EIB Board, including motorway projects in Belgium, Germany, Slovakia and the UK, grid connections to offshore wind farms in Germany and the UK, and gas storage facilities in Spain and Italy.