Authorisation for the 408MW EnPlus CCGT project in San Severo, near Foggia in Puglia, was first sought in 2002 – but it took until the deal was in the teeth of the worst credit crisis for over half a century for it to eventually reach financial close on 26 September 2008.

The financing demonstrates how crucial the smallest jump in margins and timing are in the current debt market turmoil – according to one participant, despite the six-year gestation, if EnPlus had taken just two weeks longer it would not have got done on the same terms and maybe not at all.

Mirant Italia, the original sponsor of the project, submitted an application for planning in April 2002. In January 2006, EnPlus, a joint venture between Atel and En&En, purchased the project from Mirant and in November 2007, the third shareholder, Avelar Energy, joined the venture.

The project has had a troubled birth, suffering from a raft of litigation from disgruntled local associations and public bodies – and overcoming every complaint.

The plant is controversial because it pits national interests against local. Italy is forced to buy around 13% of its electricity abroad (about 45,000GWh per year) and its cross-border transmission lines are close to saturation: The imported quantity corresponds to an extra installed power capacity of about 5200MW. The Puglia region generates twice the amount of electricity it consumes and its energy surplus counterbalances those regions in deficit, such as the neighbouring Campania region. Consequently, Puglia does not need another plant but the rest of Italy does.

The last legal challenge to the EnPlus plant was an appeal by the City of San Severo challenging its legality based on a claim that authorisation had elapsed because the construction was not started on time. The appeal was rejected by the State Council in July 2008 and a pending legal challenge was shelved in September.

To make banks comfortable disbursing funds to the project, legal counsel for the lenders, Allen & Overy, conducted a wide-ranging review of the legal due diligence drafted by the borrower's legal counsel Legance and concluded that all permits were correct and that subsequent avenues for legal recourse were limited.

Project company EnPlus is now majority owned by Swiss utility Atel (60%). Atel has a strong track record in Italy, and aside from EnPlus the utility has stakes in nine other thermal projects in the country. The other shareholders – Avelar Energy (30%), a subsidiary of Russian oil and gas firm Renova, and En&En (10%), an industrial association of the nearby provinces – also have a development pipeline of hydroelectric and wind projects. The project is tolled for 15-years to the sponsors, pro rata according to their share of the project company.

The debt totals Eu330 million ($452 million), banked against a leverage of between 74-76% depending on the use of contingencies. The debt splits into a Eu266 million, 18-year (15 year post construction) term loan with a gradual amortisation profile; an Eu60 million VAT facility with a six-year tenor; and an Eu5 million working capital and guarantee facilities.

The deal was banked by a club of seven to avoid syndication. Some banks committed before the summer at terms that was adjusted in the last two weeks before close. The targeted average and minimum DSCR is 1.3x and the LLCR is 1.1x. The usual suite of project covenants are present such as a trigger on a cash-sweep mechanism when a DSCR threshold is breached.

All banks came in as mandated lead arrangers, but with varying ticket sizes. The banks took the following tickets for the term loan: Intesa (Eu42.0 million), Unicredit (Eu42.0 million), Fortis (Eu33.9 million), Mediocreval (Eu28.3 million), WestLB (Eu42.0 million), Cassa Depositi e Prestiti (Eu42.0 million), BayernLB (Eu36.4 million). The upfront fee is 90bp and pricing starts at 115bp over Euribor during construction dropping to 110bp in the first five years post-completion, rising to 115bp to year 10 and 130bp to year 15.

One participant on the deal says, "the facility was priced high enough to make it feasible and give banks a margin. Given the market situation it does not set a benchmark because banks were pre-committed – it was fortunate to get done at all."

Aside from the market conditions, and the protracted authorisation and permitting procedure, the most difficult aspect of the financing was to make lenders comfortable with each of the sponsors as tolling counterparties. The solution was to bundle the each of the offtakes under the same tolling agreement and put in place step-in and cross step-in mechanisms, which stipulate that the other tolling counterparties must accept the spare capacity if one of the sponsors fall away.

The relatively low pricing can in part be explained away by the tolling agreement. In effect, the banks are taking counterparty risk on the strongest shareholder, the Swiss utility Atel. Also banks are taking no merchant risk, were pre-committed, and have a robust turnkey EPC contract in place with Finmeccanica subsidiary Ansaldo Energia.

Atel signed two contracts in March with Ansaldo worth over Eu500 million for EPC contracts relating to two 400MW twin-unit combined-cycle power plants. The EnPlus plant at San Severo, Foggia, and the other in France at Bayet, Allier. The contract to build the plants is supplemented by two additional long-term service agreements worth Eu120 million.

EnPlus
Status: Financial close 26 September 2008
Description: Eu330 million 15-year debt backing 407.9MW tolled CCGT plant in Italy
Sponsors: Atel (60%); Avelar Energy Group (30%); En&En (10%)
Mandated lead arrangers: Intesa Sanpaolo (modelling); WestLB (coordination and documentation); Unicredit (technical); Cassa Depositi e Presiti (insurance); Bayerische; Fortis; Mediocreval
Financial adviser: Intesa Sanpaolo
Sponsors' legal counsel: Legance
Lenders' legal counsel: Allen & Overy
EPC contractor: Ansaldo Energia (Finmeccanica)