If this deal goes through, customers who already pay the highest rates in the state would be exposed to an array of serious financial risks that we haven’t seen since the Great Depression. The Louisiana Public Service Commission should vote to protect Cleco’s customers and say no to Macquarie.
We have developed a report that provides a detailed analysis of the proposed takeover and why it is a bad deal for Louisiana.
The takeover is being led by Australian-based Macquarie Group Limited along with nearly two dozen foreign private investment groups and lenders. Macquarie and their partners would pay more than $3.53 billion to buy all of Cleco’s stock using a scheme known as a Leveraged Buyout, wherein considerable debt is taken on for the buyout and must then be repaid by the company being acquired. In this case, $1.45 billion dollars of new debt would be pledged against the value of Cleco’s assets. When added to Cleco’s existing debt, customers would be on the hook for $2.8 billion of loan repayment – equal to nearly 90% of the total value for all of Cleco’s power plants.
For 70 years following the Great Depression, laws were in place to protect customers and prevent this kind of utility takeover by private equity holding companies. In all that time, there was not a single utility bankruptcy. Macquarie is now exploiting a gap in regulatory protection to buy up utility companies all over the country and has shown a consistent pattern of increasing debt, risk, and costs for customers soon after they take control. When PUHCA (Public Utility Holding Company Act) was dismantled in 2005, utilities were again vulnerable to dangerous business deals that can lead them into bankruptcy.
The deal fails most of the Commission’s 18 factors for mergers and acquisitions, and most importantly it hurts customers who already pay the highest bills in the state. The takeover should be rejected.
