The hurdles Calyon faced as lead underwriter on the club deal for Intergen's Eu514 million ($727 million) 790MW Rijnmond 1 CCGT refinancing, give an insight into the potentially bigger difficulties for sole underwriter HSBC as it launches the Eu400 million Rijnmond 2 debt to market.

Originally both Rijnmond 1 and 2 were to be financed together, but Intergen decided that the optimal route would be to stagger the transactions to ensure bank liquidity. The Rijnmond 1 power plant first began construction in 1998 and was completed in December 2003. The original financing, which signed on 14 November 2002, comprised a Eu408 million term loan, a Eu41 million letter of credit, a Eu15 million revolver and a Eu158 million equity bridge.

Just before the turmoil hit the global markets last summer, Calyon agreed to provide a 12-month non-recourse bridge for a 37.5bp fee and 20bp margin that took out the original financing and added Eu80 million to the debt. Effectively, Calyon was warehousing the debt to allow Rijnmond 2 a clear path to financing, in return for the arranging mandate for a long-term project financing. Unlike HSBC on Rijmond 2, Calyon did not commit to underwriting.

Financial close for the project financing-proper was reached on 18 July 2008. The financing comprises a Eu448 million 11-year term loan, a Eu20 million 11-year debt service reserve letter of credit, a Eu21 million 11-year project letter of credit and a Eu25 million working capital facility.

The debt was signed as a club deal, with the take and hold amounts indicative of the difficulties Calyon faced – Calyon's final allocation came in at Eu124 million, ING took Eu85 million, EDC Eu85 million, SG Eu60 million, Fortis Eu60 million, BayernLB Eu60 million and NAB Eu40 million. Participation fees are 120bp.

Calyon's final allocation is around double the amount it forecast it would take and hold, so the bank is likely to pare down its exposure by selling in the secondary market. The bargaining positions of Intergen and Calyon in the negotiations prior to financial close were focused on the expiry of the bridge against achieving competitive pricing in the post-crunch market, while avoiding the ignominy of a failed deal.

Although the deal was not technically 'flexed' because there was not a committed term sheet in place, banks were sounded out and indicative offers received four times. Ultimately, Intergen refused to accede to higher margins, with the result that Calyon was left holding a disproportionately large ticket in a club deal.

In total the margins at financial close were around 30bp over the indicative pricing banks were first approached with.

Under the 15-year PPA backing the first financing there was full pass-through of gas costs to offtaker Nuon for the first fully-contracted five years. The two subsequent five-year blocks use a mix of a contracted formula and market-linked revenues. In 2005, following Nuon's takeover of Reliant Energy Europe and on instruction from the Dutch regulator NMa, Nuon sold the PPA to Eneco.

The deal is structured as a toggle, so that Intergen can benefit from the upside of a potential tolling agreement with Eneco, the negotiations for which are still ongoing. If a tolling agreement is reached, the maturity on the debt goes out to 2024 and the margin ratchets between 120bp and 160bp. If the deal remains underpinned by the present PPAs the tenor holds at 11-years and the pricing goes out to 180bp.

The margins of the refinancing compare favourably to the original deal – it should. The original deal came to market after the UK power crisis and was the first independent power project (IPP) in north-west Europe since the 1996 EU Electricity Directives. The initial deal, lead arranged by SG and BNP Paribas, comprised Eu461 million 20-year senior debt. The debt paid 130bp over Euribor rising to 205bp, with a 65bp participation fee.

However compared to more contemporary deals, Intergen may cast an envious eye. For instance the EdF-Delta 870MW Sloe IPP financing in the Netherlands achieved a price of 65bp-90bp. Fortis, HSBC and RBS arranged the Eu510 million 18-year loan which closed 22 February 2008.

Most of the pricing difference can be put down to the presence of a utility as a sponsor on Sloe, and the fact that most banks view the Intergen deal as a pure asset play rather than a relationship play. For those same reasons Dutch utility Eneco and International Power will call upon 12 or so of Eneco's relationship banks to secure pricing below the Intergen deals for the upcoming financing of its 845MW Enecogen CCGT in the Netherlands.

Next on the block for Intergen is syndication of the Eu400 million Rijnmond 2 sister project. HSBC is about to launch a restructured deal into the bank market. HSBC is the sole underwriter having won a funding competition late in 2007. Unlike Calyon, which arranged a non-recourse bridge before the long-term deal for Rijnmond 1, HSBC has a far weaker bargaining position with Intergen since it has committed to the long-term deal. Perhaps its best bargaining chip with the sponsor will be Intergen's desire to retain its solid reputation in the banking market.

According to a source familiar with the deal, HSBC is likely to shoulder most of the NPV loss to Intergen brought about by a flex, and discount the debt to an equivalent 95c to the dollar.

Rijnmond 1 refinancing
Status: Financial close 18 July 2008
Description: Eu541 million refinancing of a 790MW CCGT in Rotterdam, Netherlands
Sponsor: Intergen
Mandated lead arrangers:
Calyon; SG; BayernLB; EDC; ING; NAB
Financial adviser: Advisorum
Sponsor legal counsel: Clifford Chance
Lender legal counsel: Shearman & Sterling