There are polarised market views of First Gas Power Corp's (FGPC) Santa Rita project refinancing – either as a failed senior syndication or a club deal raised on a best efforts basis at a time when almost nothing was reaching financial close in the global project debt market.

The reality is that syndication has still not really closed. The deal signed in November 2008 with certainty of funding for $544 million of debt, but with a five-month window to bring in more lenders, up the volume – hopefully to the $668.7 million First Gas was originally looking for – and take advantage of a potential improvement in the syndication market before the end of first quarter 2009.

The window has passed, but First Gas is still confident of pulling in more lenders. Further banks are looking at the deal and according to First Gas, "We have requested from lenders an extension of the date for FGPC to complete the drawdowns under the syndicated tranche. Based on the feedback that we received, the majority of lenders approve our request. There are, however, lenders who would prefer to revisit the extension request at a time when a more definite participant is at hand and who may be willing to participate under the same terms as the existing bank facilities. Some of these banks share our view that the prevailing market conditions at the time we closed, may have been a major factor in prospective banks holding back on their plans to participate.

"We maintain our assessment that both the credit fundamentals and the project economics of FGPC remain unchanged and we expect a more positive response to the syndicated tranche as the market continues to improve in the coming months. In the meantime, FGPC will continue to assist in drumming up interest in the syndication."

But while the First Gas story continues to run, the certainty of financing already secured is a significant achievement at a time when lack of liquidity, a spike in Libor rates and unwillingness to lend long term had frozen the debt market. Furthermore, First Gas obtained a facility that incorporates both the longest tenor uncovered dollar tranche for a project financing in the Philippines to date, and the largest private PRI syndicate in Asia in 2008.

First Gas is a 60/40 joint venture between First Gen and BG Energy, and operates the 1,000MW Santa Rita CCGT plant in Batangas, Luzon Island, the Philippines. It was originally financed in 1997 with a $190 million KFW-Hermes guaranteed loan facility; a $160 million US private placement; a $110 million Philippine FCDU syndication; a $78 million EIB loan; a $66 million MEXIM-Mecib guaranteed loan; a $26 million MEXIM direct loan; and a $50 million revolving credit/working capital facility.

The project is one of the key users of gas from the Malampaya field, the major indigenous source of gas. The supply of natural gas is covered by a long-term supply agreement with a consortium formed by Shell, Chevron and PNOC, which operates the Malampaya field.

Completed in August 2000, Santa Rita sells power to the Luzon Grid through a long-term power purchase agreement (PPA) with Meralco, which runs until 2025. Meralco is rated in the B category by S&P and supplies 60% of the electricity sold on the Luzon grid: The acquisition by San Miguel, the beverage group, of a significant stake in Meralco in October 2008, helped with the analysis of the offtaker credit.

Lead arranged by Societe Generale, BTMU, Calyon, KfW, ING, Maybank, Standard Chartered and Unicredit/HVB, the refinancing comprises $500 million of new non-recourse debt from international commercial banks in the form of two tranches: An uncovered 10-year tranche of $188 million; and a three-point commercial PRI covered tranche of $312 million with a 12.5-year tenor. Total debt also includes an existing Hermes tranche that stays in place at the current level outstanding ($44 million) and for a remaining term of four years.

The uncovered tranche priced at 350bp over Libor for years 1-5, 375bp for years 6-7 and 390bp until term. The covered tranche paid 325bp over Libor. Fees were 135bp for takes of $40 million and above with MLA status.
Key to the financing is the commercial PRI tranche bridging the gap between the sponsors' debt requirement and bank appetite for uncovered risk. The attainment of that private PRI cover was remarkable given both the size of the facility and the upheaval in the insurance market – AIG nearly collapsed in the months leading to financial close.

Although First Gas has yet to fulfil the initial volume of debt it was looking for, the deal was a major achievement given the appalling state of the financial markets, the fact that First Gas' existing financings were coming to an end and that it achieved a certainty of finance for the majority of the debt it was looking for. The significant re-leveraging also allowed for a large exceptional dividend to the sponsors post refinancing.

First Gas Power Corp
Status: Signed 11 November 2008
Description: Refinancing for a 1000MW CCGT plant
Sponsors: First Gen Corporation (60%), BG Group (40%)
Lead arrangers: Societe Generale, BTMU, Calyon, KfW, ING, Maybank, Standard Chartered, Unicredit/HVB
Sponsor legal counsel: Paul Hastings; Puno & Puno Law Offices (local)
Lender legal counsel: Shearman & Sterling; Picazo Buyco Tan Fider & Santos Law Offices (local)
Independent Engineer: Stone & Webster, Inc.
Insurance Advisor: Marsh
PRI broker: Newedge
EPC contractor: Siemens AG