Spotlight on refinancing – the transformation of Amec Foster Wheeler

1 July 2016

Amec Foster Wheeler (AMFW) has just completed a major refinancing after a merger that extends its operations further across the globe. Jim Banks speaks to Alan Dick, director of tax and treasury, about the pressures of completing such a huge deal, and how his experience in other industries compares with the challenges of working in a service-based company with exposure to volatile energy markets.

Showing its status as a major player in the oil and gas engineering services, AMEC, announced in 2014 that it had agreed to buy US-traded Foster Wheeler for $3.2 billion to expand its international presence and its fuel product business. The deal was made on a half-cash and half-equity basis, as it had no leverage and access to an additional £400 million of revolving credit facility. Delays to the timing of the deal, however, meant a challenging few months for Alan Dick, director of tax and treasury, who was relatively new in his role at the time, but it ultimately led to a £1.7-billion refinancing of the company earlier this year.

"The refinancing dates back to when the acquisition was announced. We had a two-year bridge loan and a plan to refinance in the capital markets, but the closure of the deal ran into the end of our financial year," Dick says. "Also, by the end of May, we had signed an EMTN programme, but when the bond roadshow began in June, it had a lukewarm reception because of the market conditions. We extended the bridge loan, but bond market conditions were still not good. Then the oil market hit some difficulties and that market affects half of our services business.

"The bond market had been hot at the start of 2014, but it became clear that we could not issue the bond before the market turned, and we ran into bridge and loan issues, so we decided to refinance. The banks we talked to gave us many different options, but we chose to refinance everything. The driver was the going concern issues that we were facing, and the belief that the oil price would be lower for longer. We wanted to get across 2016 and 2017, so now we are in a position where it will be 2018 before we have to refinance again."

Following the merger, Amec Foster Wheeler (AMFW) became an even stronger company. It employs 40,000 people and has operations in over 55 countries. It provides a range of services - including consultancy, engineering, project management and construction - not only to the oil and gas industry, but also to clean energy, environment, infrastructure and mining businesses. Its blue-chip client base includes BP, Shell, GDF Suez, Sempra, Rio Tinto and Chevron.

Adaptation is essential

In March, AMFW secured a £1.7-billion debt facility to strengthen its balance sheet, and the resulting 11% bump in its share price shows that the move has been received well by the market.

Technology will have a profound impact. In cash management, for instance, the ability to view bank balances across the globe is a big advantage. Cash-flow forecasting, treasury-management systems and payment systems that enable mobile services are key developments.

The deal has many components, such as a £650-million term loan over three years, another £650-million term loan over five years and a £400-million revolving credit facility. No capital repayments are due until 2019, by which time the dynamics of the oil market may have turned back in its favour. The company is looking to extend its cost-cutting programme and reach its target of $180 million in savings by 2017.

As part of the refinancing, Dick had to deal with dozens of banks, some of which had very different ideas for the business.

"This is a diversified business that does not rely solely on the oil and gas sector. Some banks understood that, but we had to lose some others that were concerned about their overall exposure to the oil and gas sector. We wanted to leverage the Foster Wheeler acquisition. We had an £830-million bridge and approval to take it out with a bond. We refinanced the whole of the acquisition fee for Foster Wheeler with bank debt on a longer maturity. I dealt directly with 24 banks because underwriting was proving challenging," says Dick.

Before handling the intense job of AMFW's refinancing, Dick joined the brewing, sales, pub tenancy and wholesaling operation of Scottish & Newcastle as group treasurer in 1995, becoming director of group financial services until Heineken acquired the company in 2008. After his stint at Scottish & Newcastle, Dick joined Urenco, an international supplier of nuclear fuel enrichment services, based in Buckinghamshire with plants in the Netherlands, the UK, Germany and the US.

"When I joined Urenco, it was in an expansion phase so there was a lot of capital expenditure for long-term investment, but there are only 50 customers for what it produces, even though the nuclear industry operates worldwide. It has very few customers, but we had large value receipts from each of them. The treasury function was small and the main challenge was the big foreign exchange exposures. We had a lot of invoices in US dollars and we wanted euros," he says.

"Scottish & Newcastle is at the other end of the spectrum. It is an FMCG company with a very different focus. With brewing operations and pubs, it had a lot of assets on its balance sheet, so it sold the pubs and became a focused brewer. It also had a small treasury team with only six people in the UK. Now, I am at a services company focused mainly on design, although we also do some construction. We are asset-light, but we are in over 50 countries. We have £1 billion in performance bonds in the market and cash management is a big issue. We have a bigger team on a regional basis - 16 people - and we need to do a lot of our work locally. Treasury skills are transferable, so the big thing I had to get used to was the organisational change."

In his past, Dick has had to deal with changes that have impacted the treasury function, not least the changing accounting regulations that affected the large forex hedges required by Urenco. Now, it is also technological development that shapes how the treasury function operates.

"Technology will have a profound impact. In cash management, for instance, the ability to view bank balances across the globe is a big advantage. Cash-flow forecasting, treasury-management systems and payment systems are key developments," he says.

"Regulations in the banking sector are making it harder for banks to do the basic things, so that is making the treasury's job harder. The other significant factor is that boards continue to focus on treasury and there's an understanding that treasury impacts the bottom line. That means I have a close relationship with the CFO.
My role is a lot about risk mitigation."

Alan Dick is the director of tax and treasury at AMFW. Previously, Dick was at Urenco as group treasurer. He worked at Scottish & Newcastle for over 13 years in multiple roles including group treasurer, director of group financial services and director of a special task team to separate the group after its takeover.