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Red Eléctrica adds Iberdrola network

17 February 2005 – Red Eléctrica de España (REE), the electricity system operator and owner of the bulk of the electricity transmission grid assets in Spain, has agreed to acquire 75 per cent of Iberdrola’s transmission network from Grid Industries which owned by CVC Capital Partners.

REE already had a 25 per cent stake in the network and has exercised an option to acquire the remaining 75 per cent of Red de Alta Tension (Redalta). The deal is reportedly worth €739m ($960m). The stake itself has cost REE €247m but the total purchase price includes a credit arrangement.

Standard & Poor’s Ratings Services said Tuesday that its ratings and outlook on REE remain unchanged as a result of the agreement. Standard & Poor’s was expecting REE to exercise its purchase option in December 2007. The rating agency said that the increase in debt resulting from the acquisition and from the consolidation of Redalta, which will be about €800m, would weaken REE’s financial profile. The group’s funds from operations (FFO) interest coverage and FFO to gross debt are likely to reach minimum levels of 4.5x and 15 per cent respectively, but over a five-year period should improve and–given the company’s strong business profile–remain consistent with the ‘AA-‘ long-term rating.

REE has purchased the HV networks of Endesa, Union Fenosa and Viesgo over the past two years for a sum approaching €1.5bn.