Babcock & Brown Infrastructure has completed the acquisition of the Cross Sound Cable, which links the electricity grids of New England and New York.

As announced by BBI on Nov. 9, 2005, BBI entered into a purchase agreement with TransEnergie HQ Inc and UIL Holdings to acquire the membership interests in the Cross Sound Cable Company LLC for approximately US$213 million and an equity requirement of US$25.7 million, excluding cash reserves. The Cross Sound Cable Company has 100% ownership of the Cross Sound Cable Project.

The acquisition was subject to a number of regulatory approvals, all of which have now been satisfied, and the transaction was completed yesterday.

The Cross Sound Cable was commissioned in 2002 and is a High Voltage Direct Current (HVDC) transmission interconnector, linking the New England and New York electricity grids. It consists of 39 km of 150-kV undersea cable, terminating in two on-shore converter stations using AC/DC conversion technology designed, built and supported by ABB Power T&D Inc. The interconnector can transmit up to 330 MW continuously and can flow electrical current in either direction. The cable entered into continuous operation early in 2005.

The entire transmission capacity of the cable is contracted to the Long Island Power Authority (LIPA) until June 2032. LIPA is an A3/A-rated municipal power authority. Payments by LIPA to the cable owner are based on availability of the cable, which is expected to be in excess of 98%. Contracted revenues escalate by a fixed percentage per annum over the life of the contract (subject to achieving availability criteria). There is also a one-off material increase in base contracted revenue, which will occur by no later than July 1, 2008.

The Cross Sound Cable is an essential component of the growing but capacity-constrained New York and New England electricity markets. The importance of the cable to the region is therefore expected to increase over time.

The acquisition cost reflects an EV/EBITDA multiple of less than 13.7 times (excluding transaction costs), by July 1, 2008. The majority of operating costs are stable, and there is a comprehensive inventory of spare components held on both sides of the cable at the converter stations. The asset is also early in its engineering life, having been commissioned in 2002. Ongoing capex requirements are low with this type of long-life electricity asset.

All key members of the existing operations team have been retained and will continue in their current roles. This is an important benefit as the team has extensive knowledge of the asset, having been involved in its development and commissioning.

BBI will fund the acquisition through a ring-fenced, secured, 5-year project financing of US$193.1 million and equity. Project gearing is approximately 90% due to the secure and predictable nature of the cash flows of the project and the long life of the asset. The underlying base interest rate has been fixed for the duration of the contract with LIPA (i.e. until June 2032). The project has a post-tax equity IRR in excess of 12%. BBI may elect to partly fund the equity requirement with BBI corporate debt (drawn in USD) to cost-effectively hedge currency risk.