Shortfall in private cyber defences

BY Richard Summerfield

Given the increasing sophistication of cyber criminals and the potential risks faced by companies that fall victim to attack, cyber security has become a hot topic in recent years. According to a new report from the President’s National Infrastructure Advisory Council (NIAC), however, cyber defences in the US are not currently fit for purpose.

The report, 'Securing Cyber Assets: Addressing Urgent Cyber Threats to Critical Infrastructure', was based on reviewing hundreds of previous studies plus interviews with 38 cyber experts, who were mostly in the financial services and electricity sectors.

The NIAC, which was created in the aftermath of the 11 September 2001 attacks in the US, is charged with the task of advising the Department of Homeland Security on the security of US critical infrastructure against any form of attack, be it physical or cyber based. It believes that cyber security provisions in the US are currently experiencing a pre-9/11 moment. According to the report, if more is not done to protect the country’s critical infrastructure, such as the financial system or electric grids in the US, both the government and private industries run the risk of missing a “narrow and fleeting window of opportunity before a watershed, 9/11-level cyber attack".

The report notes: “Cyber is the sole arena where private companies are the front line of defence in a nation-state attack on US infrastructure. When a cyber attack can deliver the same damage or consequences as a kinetic attack, it requires national leadership and close coordination of our collective resources, capabilities, and authorities."

The NIAC has proposed 11 specific recommendations to shore up the country’s cyber security defences. Chief among these is establishing specific network paths designated for the most critical networks, which would include dark fibre networks for critical control system traffic and reserved spectrum for backup communications during emergencies. The NIAC also recommended private organisations and government bodies improve their threat information sharing. In addition, the government should provide incentives for any hardware upgrades performed, as well as establish a centre of excellence which will showcase best-in-class tools across the industry and provide a test bed environment for companies to test and evaluate new software, among others.

“We believe the US government and private sector collectively have the tremendous cyber capabilities and resources needed to defend critical private systems from aggressive cyber attacks – provided they are properly organized, harnessed, and focused. Today, we’re falling short”, the report suggests.

Report: Securing Cyber Assets: Addressing Urgent Cyber Threats to Critical Infrastructure

PE investment into CEE reached €1.6bn in 2016, reveals new data

BY Fraser Tennant

A vibrant market typified by strong interest from GPs and LPs, Central and Eastern Europe (CEE) companies saw private equity (PE) and venture capital investments totalling €1.6bn in 2016 – the highest since 2009 – according to new data.

In its ‘Central and Eastern Europe Private Equity Statistics 2016’ report, Invest Europe reveals that the CEE region’s total PE fundraising amount rose 62 percent year-on-year to €621m in 2016, as larger fund managers returned to the market, and in line with a Europe-wide increase in fundraising for the asset class.

In addition, European investors from outside the CEE region provided 58 percent of the total capital raised, while funding from investors outside of Europe grew nearly nine-fold, particularly from the US. Long-term private investors contributed 43 percent of the overall fundraising amount, with funds-of-funds the largest source of capital, accounting for 27 percent, followed by pension funds with 16 percent.

In terms of investment capital, 2016 was mostly focused on Poland, followed by the Czech Republic, Lithuania, Romania and Hungary respectively. The most targeted sector was consumer goods and services, which attracted 23 percent of the investment value, while information and communication technology (ICT) followed on 22 percent.

“PE activity in Central and Eastern Europe was strong in all key areas last year,” said Robert Manz, managing partner at Poland’s Enterprise Investors and chairman of Invest Europe’s CEE Task Force. “Investments, divestments and fundraising all demonstrated a vibrant market with robust interest from GPs and LPs.

The report also notes that the total number of companies divested in CEE increased to a record high of 112 in 2016, mainly driven by exits of venture-backed companies. Furthermore, sale to another PE house – the secondary market – became 2016’s most utilised exit route in terms of amount, accounting for €476m of value at historical investment cost and 46 percent of the region’s total divestment value.

Finally, trade sale remained the most common route in terms of the number of companies divested at 37. Poland was the largest market in the region for exits, at 35 percent of divested amount at cost, followed by the Czech Republic, while ICT was the region’s most important sector for divestments, including two out of the four largest exits last year.

Mr Manz concluded: “The region’s fund managers are hard at work maximising buying and selling opportunities, while institutional investors are showing renewed appetite for the region.”

­­­­Report: Central and Eastern Europe Private Equity Statistics 2016

Sempra and Oncor agree merger

BY Richard Summerfield

Sempra Energy is to acquire Oncor Electric Delivery Co for $18.8bn, including existing, outstanding debt of around $9.45bn, the companies have announced in a statement.

Sempra will pay cash for the company and the deal is expected to be financed by a combination of Sempra's own debt and equity, third-party equity and $3bn of expected investment-grade debt.

"Both Sempra Energy and Oncor share more than 100 years of experience operating utilities that deliver safe, reliable energy to millions of customers," said Debra L. Reed, chairman, president and CEO of Sempra Energy. "With its strong management team and long, distinguished history as Texas' leading electric provider, Oncor is an excellent strategic fit for our portfolio of utility and energy infrastructure businesses. We believe our agreement with Energy Future will help ensure that Texas utility customers continue to receive the outstanding electric service they have come to expect from Oncor and provide stability to Oncor's nearly 4000 employees."

Elliott Management is the largest creditor of bankrupt Energy Future Holdings, the majority owner of Oncor, and Elliott have backed Sempra’s bid to take over the company, spurning a rival takeover attempt by Warren Buffett. In July, Mr Buffett’s Berkshire Hathaway made a rival $18bn offer for Oncor which was rejected by the company, as well as Elliott, who argued that the offer was too low and not in creditors’ interest. 

Under the terms of the deal, Sempra Energy has committed to support Oncor's plan to invest $7.5bn of capital over a five-year period to expand and reinforce its transmission and distribution network.

Once the deal has been completed, Bob Shapard, Oncor's CEO, will become executive chairman of the Oncor board of directors and Allen Nye, currently Oncor's general counsel, will succeed Mr Shapard as Oncor's CEO. Both are set to serve on the Oncor board, which will consist of 13 directors, including seven independent directors from Texas, two from existing equity holders and two from the new Sempra Energy-led holding company.

Elliott had tried to put together its own $9.3bn bid to buy Oncor but ultimately decided to back the Sempra deal, which a spokesman said "provides substantially greater recoveries to all creditors of Energy Future than the proposed Berkshire transaction." Elliott acquired a specific class of debt worth about $60m from Fidelity Investments that gave it the power to block Berkshire’s offer.

News: Sempra Energy to buy Oncor for $9.45 billion in blow to Berkshire

Source: http://www.reuters.com/article/us-oncor-m-a-sempraenergy-idUSKCN1B1041

Knight Energy files for Chapter 11 as part of restructuring exploration

BY Fraser Tennant

In an attempt to improve its balance sheet and liquidity position, Knight Energy Holdings, LLC and its operating affiliates (including Knight Oil Tools) have voluntarily filed for Chapter 11, as well as entering into a financial restructuring support agreement.

The agreement, made in the US Bankruptcy Court for the Western District of Louisiana, Lafayette Division, is supported by secured lenders and will improve Knight Energy’s balance sheet by equitising over $175m of its existing obligations and provide for significant new capital to substantially boost its liquidity position through an exit financing facility.

Knight Energy has stated that it will continue to operate in the ordinary course of business during the Chapter 11 and restructuring proceedings and has filed various ‘first day’ motions seeking approval of relief – a $14.5m debtor-in-possession (DIP) financing facility – so as to operate with minimal impact or interruption to its valued employees, customers, vendors and other important parties.

One of the largest, privately-owned oilfield rental tool companies in the world, Knight Energy supplies a wide offering of rental equipment and services for drilling, completion and well control activities - serving a diverse base of oil and natural gas exploration & production (E&P) operators. The company was founded in 1972 by Eddy Knight and is owned today by second-generation family members.

“Like many leading oil and gas companies, we have been affected by the ongoing downturn in the market,” said the Knight family in a statement. “The company has spent considerable time since then focusing on how to best serve our customers, employees, and to maintain strong relations with our vendors and employees. In order to best position our company for the future, we felt that a financial restructuring was necessary and worked with our stakeholders to achieve a consensual plan to deleverage the company and position Knight and our employees for success.”

Heller Draper is acting as lead restructuring counsel during the Chapter 11 restructuring proceedings, with a representative from Opportune serving as Knight Energy’s chief restructuring officer. Farlie Turner has served as Knight Energy’s financial adviser.

Confident that requested relief will be granted and the company will have ample liquidity to support the business during the Chapter 11 and restructuring process, the Knight family concluded: “Together we have developed a long term strategic plan that will allow Knight to continue to be a market leader.”

News: Knight Oil Tools’ Parent Company Files For Bankruptcy

Tough time ahead for financial services

BY Richard Summerfield

As higher inflation impacts UK households, and as a decline in real wage growth continues to take hold, the financial services sector is in line for a tough 2018, according to the latest EY Item Club Outlook for Financial Services.

The report notes that inflation will peak at around 3 percent in the second half of the year, while real household disposable incomes are forecast to decline by 0.2 percent in 2017 - the first drop since 2013. This fall in household income is likely to decrease the demand for mortgages and other 'big ticket' items and general insurance in 2018.

The combination of higher inflation and decreased real earnings will likely lead to an increase in consumer credit next year, as households look to compensate for any shortfall with increased borrowing. The amount of consumer loans will grow from £204bn in 2017 to £206bn in 2018 before rising to £212bn in 2019 and £218bn in 2020, according to the report.

EY UK financial services managing partner Omar Ali said: "Even modelling for a Brexit transitional deal, the outlook for 2018 remains tough for financial services as the impact of higher inflation is felt by households up and down the country. Business lending, mortgage lending and general insurance look set to be the hardest hit. Despite warnings from the Bank of England and some high-street lenders, the only type of lending that is expected to grow in 2018 is consumer credit."

Indeed, the pressures applied to consumer spending in 2018 could dramatically affect the UK’s short term economic prospects. With consumer spending accounting for 60 percent of the UK’s GDP, any significant reduction in consumer spending could have a knock on effort on GDP. With pay growth expected to remain subdued in the short term at least, real earnings are expected to fall by 0.5 percent this year.

The report predicts business lending will rise to £435bn by 2020, but only if the UK is able to strike a transitional deal during Brexit negotiations with the EU. Mortgage lending, however, will fall to £1.1 trillion in 2018, compared to a forecast £1.2trillion in 2017, though it is expected to climb slightly in 2019 and 2020.

Report: EY ITEM Club Outlook for Financial Services