The owners of the 75-year lease on Chicago’s parking meters are going to market this week with a $500 million bond issue that will test corporate bond investors’ appetite for privately-issued infrastructure debt.
Chicago Parking Meters LLC, the Morgan Stanley Infrastructure Partners-backed concession company for the meters, will issue 10-year non-amortising senior secured bonds, according to a person familiar with the transaction.
The bonds could price as early as tomorrow, the person added.
Chicago Parking Meters:
In 1999, the Macquarie-backed Dulles Greenway concession company sold a $332 million bond issue. And in 2005 the Skyway Concession company, also part-owned by Macquarie, issued two tranches of bonds totaling $1.4 billion.
Unlike the Dulles and Skyway transactions, though, the Chicago Parking Meters deal won’t be “wrapped”, meaning that a third-party won’t insure the bonds against default. Municipal bond insurer MBIA wrapped Dulles’ bonds while FSA wrapped the Skyway issue, resulting in AAA ratings for both offerings.
In return, Skyway was awarded with very cheap borrowing cost: its 12-year tranche priced at Libor plus 28 basis points, while its 21-year tranche priced at Libor plus 38 basis points.
Libor, or the London interbank offered rate, is a common interest rate benchmark.
Chicago Parking Meters’ bond issue received a Baa3 credit rating from ratings agency Moody’s. It remains to be seen what spread, or extra interest beyond the Libor benchmark, investors will demand from the issue. But the source familiar with the transaction compared the offering to an investment grade utility bond.
A 10-year corporate utility bond can expect a spread of about 128 basis points over a similar-length US Treasury note, according to data from Reuters.
The offering will be significant for the owners of Chicago Parking Meters LLC because it will normalise the company’s capital structure. Normally, buyers of infrastructure will finance their acquisition price via a combination of private equity and senior debt. But Morgan Stanley Infrastructure Partners financed the $1.16 billion rent payment for the 75-year lease of the Chicago parking meters entirely with equity. So the $500 million in bonds will be the first debt coming into the concession company’s capital structure since the deal closed in February 2009.
Since then, Morgan Stanley has sold down its equity stake in the concession company to several other institutional investors, including the Abu Dhabi Investment Authority and Allianz Capital Partners, the private equity arm of German insurance group Allianz. Allianz owned 49 percent of Chicago Parking Meters as of the end of last year, according to the Allianz annual report.
More recent media reports indicate that Allianz and Abu Dhabi each own about 25 percent of the company, though Moran Stanley remains a controlling shareholder at slightly above 50 percent.
If the bond offering is successful, it would squeeze out about 40 percent of the equity out of the company’s capital structure.
The bond offering is being under-written by Barclays Capital and Credit Suisse, who are acting as joing book runners, and RBS, which is acting as a co-manager on the offering.
Law firm Freshfields is acting as issuer’s counsel, while Dewey & LeBoeuf is representing underwriters.