AES has completed syndication of the $550 million financing for its Nueva Ventanas project in Chile. The debt's lead arrangers, Fortis and Calyon, were nearing close as Project Finance went to press, following bank meetings in both Santiago and New York. Ventanas' $440 million debt sets an aggressive benchmark for power deals in Latin America, although the deal highlights the extent to which Chilean borrowers are now a class apart from their peers.

Nueva Ventanas is a 241.8MW (net) coal-fired power project located in the Valparaiso region of Chile. It is part of the Central Interconnected System, one of four grids with limited interconnection and, with roughly 70% of Chile's users, the largest. Gener, a 91.19% AES subsidiary, already owns 338MW of coal-fired capacity at the same site.

Chile's fuel mix is undergoing a re-evaluation in the face of disruptions to regional oil and gas supply networks. Argentina has taken moves to restrict gas exports to its neighbours, and oil and gas prices remain high. While ENAP, Chile's state oil and gas company, is pursuing LNG import projects, the country is also re-evaluating coal, which until recently had declined in importance alongside domestic coal production.

The Ventanas deal is the second to close this year in Chile. In January, Calyon closed a $390 million expansion and refinancing deal for the Guacolda plant, of which Gener owns half (COPEC and Ultra Terra, each with 25%, own the remainder). That 15-year deal financed 150MW in additional capacity at the 304MW plant and replaced a $150 million project bond that Credit Suisse closed in 2003.

But Ventanas differs in several key respects. It benefits from a 15-year toll with Gener, which is rated BBB-/Baa3, whereas Guacolda had a merchant element. This enables Ventanas to both achieve lower pricing and to cast its net much more widely in syndication.

In part, the deal benefits from the improvement in Gener's fundamentals, since Moody's upgraded the sponsor to investment grade just as syndication was launching (S&P already had it at BBB-, but had it at B+ as recently as 2003), and upgraded Chile to A2 in mid-2006. Moreover, while the Chilean bank market has proved to be up to the task of booking complex project credits, the international dollar markets have been hungry for solidly-structured Latin American credits.

Fortis, which swooped on the mandate in a country and sector that Calyon has dominated, believed that such a credit could support a much more aggressive financial structure. Fortis subsequently brought in Calyon because of this same franchise, and the two underwrite the debt equally.

The debt breaks down into a 3-year construction loan of $415 million and a $25 million debt service letter of credit. The construction loan converts into a 12-year term loan once the plant is complete. Gener is contributing its $110 million in equity upfront. The project is standalone and does not benefit from the revenues of the existing plants at the site.

Because of the tolling agreement on the project, its operating profile correlates very closely to that of Gener. The utility, Chile's second largest, does not benefit from AES guarantees (although AES personnel in Arlington, Virginia, were intimately involved in the financing). But Gener's standalone credit rating is as good as many US energy marketers, and its project is low-cost, baseload, and is vital to serving Gener's customer base.

The engineering, procurement and construction contractor on the project is a subsidiary of Korea's POSCO, which is rated A1/AA- (Moody's/S&P) but does not unconditionally guarantee the subsidiary's obligations. The plant uses turbines from Ansaldo, a subsidiary of Italy's Finnmeccanica, and a boiler from Doosan Babcock, now Korean-owned.

The lack of an EPC guarantee is one of the few questions that potential participants raised. The financing benefits, however, from the presence of the Export-Import Bank of Korea (Kexim), in its first project financing in Latin America. Kexim's profile on Middle Eastern project deals is high, and it is a powerhouse in shipping deals, but such a participant role on a Chilean power deal was a first.

It provides the other lenders with whatever slim political risk benefit they might require on a Chilean deal, but also provides some assurance that POSCO will stand behind its subsidiary. POSCO is also providing lenders with a letter of credit to back 30% of the contract price. Kexim's interest in the project bodes well for coal-fired projects elsewhere in the hemisphere, where Doosan and other Korean manufacturers are attempting to gain market share.

The financial structure has tight debt service coverage ratios, at 1.35x average and 1.3x minimum, and an 80/20 debt equity ratio. The debt is understood to be priced at roughly 100bp initially, and if this is confirmed it would set a new benchmark for the country's borrowers. The financing is also believed to include a gentle early amortization schedule with a bullet maturity, in common with several single asset deals in Europe and the US.

Chile's power market will need to undergo some further structural changes if it is to become less reliant on its frequently unreliable neighbours for fuel. While coal will be a part of this, and may provide some opportunities to emulate Ventanas' structure, LNG-fuelled facilities could also use tolling mechanisms. Other suggested alternatives, including hydro and biomass, will rely on other types of debt.

Final close of the financing is waiting for bank consents to the final set of project documentation, and the deal has met its conditions precedent, including those relating to shared facilities at the Ventanas site. The consents should be forthcoming shortly. n

Empresa Eléctrica Ventanas S.A.
Status: Syndication complete, awaiting consents
Size: $550 million
Description: 241MW coal-fired power project
Location: Chile
Sponsor: AES Gener
Debt: $440 million
Lead arrangers: Fortis, Calyon
Maturity: 2022
Lender legal counsel: White & Case
Borrower legal counsel: Vinson & Elkins