Nueva Ventanas: Tenor extended

The $440 million project financing for Empresa Eléctrica Ventanas S.A., also known as Nueva Ventanas, represents both an advance in loan structures in Chile and what the syndication market will accept. The deal also witnessed a new entrant to the Latin American power EPC market.

Nueva Ventanas is a 241.8MW (net, equivalent to 267MW gross), coal-fired power project to be located next to two existing coal-fired units with a total capacity of 338MW (gross) at Ventanas, Chile. The project's owner and offtaker is AES Gener, a 91.19%-owned subsidiary of AES and the second largest generation company in Chile.

Due to the restrictions of the power purchase agreements (PPAs) with AES Gener, neither the PPAs nor the revenues could be pledged to the lenders. But under the 15-year tolling agreement the project does not take fuel supply or price risk. Under the agreement, the plant will take delivery of its fuel requirements from Gener and will provide capacity and energy to Gener. In turn, the plant receives fixed and variable payments from Gener. The fixed capacity payment is sized to cover the project's fixed charges and repay debt plus an energy payment for the energy produced. These revenues are offset by penalties for the project not being available.

Gener has three Chilean distribution concessions with lengths of up to 15 years, and Nueva Ventanas' capacity will contribute to a portion of these contracts. The central interconnected region (SIC) of Chile, in which the plant is located, has strong demand and the need for additional coal-fired capacity in Chile is well recognised.

The financing comprises a $415 million senior secured construction loan, converting to a term loan, and a $25 million seven-year debt service reserve letter of credit. Project leverage was 80%, supported by the tolling agreement, and sized to meet 1.35x and 1.30x average and minimum base case debt service coverage ratios.
The loan market in Chile is generally inclined to accept tenors of up to 15 years, but Gener wanted a loan amortization profile in line with the 15-year toll plus construction. So the bookrunners, Fortis and Calyon, structured the loan to mature no later than the 15th anniversary of the execution date of the credit agreement while having an amortization schedule of 15 years after conversion, leaving a balloon at final maturity. This balloon is projected to be not greater than 15% of the total debt amount, and to be refinanced at or before maturity, and could be repaid with the fixed payments under the toll in the remaining years of the tolling agreement.

Despite the bullet at maturity, refinancing risk is considered to be low due to the three year tolling tail. If the debt could not be refinanced, the project would effectively be in default and base case projections show 100% cash sweeps would recover the balloon within the maturity of the toll. Pricing was set to start at 95bp over Libor, and rise to 100bp after conversion and then rise further in 12.5bp increments to 137.5bp towards maturity.

AES, and Gener specifically, have a reputation as experienced sponsors with a good track record at the site of the existing units. The project site is next to two existing coal-fired units owned by AES Gener totalling 338MW in Ventanas, Chile, about 120km north-west of Santiago, Chile, which allows it easy access to their infrastructure, fuel supply and transmission interconnection. Doosan boilers and Ansaldo turbines are considered proven technology, while the EPC contractor, POSCO, despite this being its first Latin American project, is considered a high-quality counterparty.

In fact, the involvement of POSCO attracted the interest of Korean lenders and Kexim, which later supported the transaction with a $50 million commitment. Nevertheless, while Kexim's support was very beneficial to the financing, it was not in place at the launch of syndication.

The environmental permitting also represented a challenge for the lenders. The permits were granted based upon the aggregate impact on the environment from adding an additional plant next to the existing plants. The MLAs were faced with the risk that if one of the existing plants were out of compliance, the whole project would be in breach due to the shared permit. As a result, in the event of a breach caused by an existing plant, certain rights over the operations of the existing plants were given to the project, thereby giving it the ability to cure that breach.

Lead arrangers, Fortis and Calyon offered modest-sized tickets of $20 million and $30 million in syndication. Some key relationship banks for Gener and AES were given early offers in recognition of their recent or historical support of one or the other. These banks, invited in as documentation agents or Chilean arrangers respectively, were able to commit larger amounts to the facility than were on offer to the retail syndication market. By the end of May, syndication had been oversubscribed by nearly 40%.

Empresa Eléctrica Ventanas S.A.
Status: Financial close 8 June 2007
Size: $550 million
Description: 241MW coal-fired power project
Location: Chile
Sponsor: AES Gener
Debt: $440 million
Lead arrangers: Fortis (administrative agent), Calyon (syndication agent)
Participating banks: ING Capital (documentation agent), Standard Chartered (documentation agent), WestLB (documentation agent), Bank of Nova Scotia (Chilean arranger), Banco de Chile, Banco de Credito e Inversiones, ABN Amro, Caja Madrid, Dexia Credit Local, DZ Bank, GE Capital, Landesbank Baden-Württemberg, Landesbank Hessen-Thüringen, Landesbank Rheinland-Pfalz, Shinhan Bank, Banco del Desarrollo, Caja Insular de Ahorros de Canarias, Banco Itau, Caja de Ahorros del Mediterraneo
Lender legal counsel: White & Case
Borrower legal counsel: Vinson & Elkins
EPC Contractor: Posco Engineering & Construction Co Ltd
Independent Engineer: RW Beck International
Market Adviser: Synex Ingenieros Consultores