By the OGJ Online Staff
HOUSTON, July 17, 2001 Banks snapped up a $2.2 billion construction loan for two huge merchant power plants in Arizona and Arkansas despite uncertainty caused by California's electric utilities' woes.
Panda Energy International Inc., Dallas, and TECO Power Services, a unit of TECO Energy Inc., Tampa, Fla., Tuesday said the 5-year banking financing of the two largest independent power projects in the US was 50% oversubscribed.
Forty banks participated in the general syndication, which was oversubscribed by $1.2 billion, including a 36% oversubscription on the $500-million equity bridge loan and a 62% oversubscription on the $1.7-billion nonrecourse portion.
The financing will cover construction costs for the TPS/Panda joint venture's Union power station in El Dorado, Ark., and Gila River power station in Gila Bend, Ariz. The two plants represent almost 4,400 Mw of natural gas-fueled generating capacity. Construction has begun at both sites.
A TECO spokeswoman said the Chapter 11 bankruptcy of Pacific Gas & Electric Co. and near insolvency of Southern California Edison Co. were one of the "hurdles" that had to be overcome during the negotiations. "Banks usually are not willing to go forward when there is a lot of volatility."
But the companies credited the deal's "clean structure," the caliber of the sponsors, high project debt service rations, and the "superior profile" of the projects with its reception. It was the most widely syndicated large-scale merchant plant financing this year, they said.
The financing overwhelmingly demonstrates that there is still a strong bank market for merchant deals, said Bryan Urban, Panda Energy senior vice-president. "These projects are the new benchmark for the power industry," he said.
Permanent financing for the projects will be determined at a later time, according to the TECO spokeswoman.
Citigroup and Societe Generale were the lead arrangers for the financing. Pricing on the transaction started at 162.5 basis points over the London Interbank Offered Rate (LIBOR) for construction and will increase to 175 basis points in year one of operation and 200 basis points for years two and three. LIBOR is the rate on dollar-denominated deposits, also know as eurodollars, traded between banks in London.
The projects are expected to secure an investment grade rating near the end of the construction phase, at which point the pricing is expected to drop by 12.5 basis points.
Jacob Worenklein, Societe Generale's global head of project and sectorial finance, said the successful distribution reflected "the growing sense of calm in the bank markets regarding the US electricity sector."