AES has been struggling valiantly against a corporate liquidity crunch for most of the last twelve months. There are three elements of its survival strategy that can be ascertained thus far. The first is to free up some time to reduce its corporate debt burden, the second is to pursue a number of asset sales, and the third is to hunt down new sources of liquidity to continue the projects it has under construction. Its $145 million medium-term financing for the Andres LNG project offers a useful way out for other cash-strapped sponsors that want to stay in emerging markets.

The first element has been effectively achieved after a game of bluff with its corporate lenders, a disparate group whose composition reflects AES' decentralised management structure. It completed a $2.1 billion refinancing in December, after cajoling two retail banking holdouts into signing up to the package at an attractive rate of interest. This gives it until 2004 to get back on its feet.

The second is a series of asset sales that has included the Mount Stuart and Ecogen Australian assets, which brought in $165 million, and the sale of the Tanzanian Songas and South African Kelvin projects to CDC Globeleq for $116 million in net proceeds. The sale to Constellation of NewEnergy brought in $260 million, while a planned sale of Cilcorp to Ameren is currently in the hands of regulators.

The last strategy has the most to offer project bankers ? the use of domestically raised funds to fund emerging markets project construction, or take assets off balance sheet. AES Panama raised $275 million from Panamanian institutions, among others, and AES had raised Rand debt for Kelvin's refurbishment before its sale. AES Andres is its most ambitious deal yet ? a first for the Dominican Republic and a first for LNG projects.

AES Andres consists of an LNG import terminal, regasification facility, pipeline and 300MW dual-fuel-fired power plant located on the Caucedo peninsular in the Dominican Republic. It has a 160,000 cubic meter tank, two water glycol vaporizers, and a berth for a vessel between 35,000 cm and 145,000 cm. The complex, currently under construction, will complement AES' existing assets ? the EDE Este distribution company and 200MW Los Minas power plant. The chief driver behind the project is AES' wish to bring natural-gas fired capacity to the Republic's generation mix.

The project has been in development since AES' earliest involvement in the sector, as far back as 1998, and construction began on the facility in September 2000. It differs from many of the terminals planned for the region in that it is not designed to be part of a wider regional spot market, still less to monetise properties elsewhere. Its primary ? and continuing ? purpose will be to enhance AES' generation portfolio. Los Minas, at a distance of 30km, will be the main source of revenue that service's Andres' debt.

The facility, however, is a tempting opportunity for gas suppliers, several of whom have LNG gasification plants that they would like to make financeable. In this instance, BP, a producer with substantial assets in the region, particularly through its legacy Arco properties in Trinidad, has stepped up. It has signed a 20-year supply contract with Andres.

On the offtake side, AES is fortunate in retaining the ability to sidestep the government entirely. As a generator with interests in a distribution company it does not have to sell power via the government. This is fortunate since one IPP with an apparently solid PPA, a solid sovereign backstop, and a partial wrap from the Inter-American Development Bank (IDB), Cogentrix' San Pedro project, keeps getting paid late. AES relies upon the credit of a sister company.

EDE Este does not receive guarantees from the AES corporate parent, and lenders must therefore rely upon the credit of the distributor to get comfortable with the project's risk. This may be one reason why US Ex-Im and the IDB, both of which are looking at the deal, are taking their time in approving the project.

Nevertheless, the $145 million financing is required to bring Andres to completion, and AES has spent $250 million in equity thus far. Until a long-term ECA/multilateral package can be assembled it approached a number of regional institutions, and a project loan fund, for interim debt. One tranche comes from vendors to the project, who would rather not publicise their assistance, although Chicago Bridge and Iron, the contractor, is a prime suspect. Another source of mystery is the deal's holding company structure ? AES has retained Dutch counsel, so the possibility of using Netherlands Antilles tax advantages is strong.

The second tranche comes from TCW's Global Project Fund. TCW's fund was formed as a capped, but open-ended, collateralised loan obligation (CLO), but is best described as an opportunistic, small ticket debt fund. Indeed TCW is having a strong year, and has also been able to buy out debt positions on strong assets from distressed sellers. This ability, as well as a relatively benign buy and hold mentality, means that it should be fielding calls from either side of the debt divide in coming months.

The final tranche comes from Banco Popular Dominicano (the largest bank in the Dominican Republic, acting as lead arranger), Banco Popular Puerto Rico, Banco BHD, Banco Mercantil, and Banco Profesional. Of the five, only the second is not from the Dominican Republic. The country has healthy, although not large, reserves of dollars from tourism, a free trade area, and remittances. Nevertheless, tenors on offer are not long.

A long-term package is still a long way off, and it seems unlikely that the domestic players will go any further out than the current tenor, although TCW would in theory like to stay in. However, since AES has two similar plants in development (in Honduras and in the Bahamas), and if there are still no signs of interest from international banks in further exposure, local players will remain important allies.

AES Andres

Status: closed 20 December 2002

Size: $145 million

Location: Dominican Republic

Description: medium-term financing of LNG receiving terminal and 300MW gas-fired plant

Sponsor: AES

Arrangers: TCW, Banco Popular Dominicano (lead) Banco Popular Puerto Rico, Banco BHD, Banco Mercantil, Banco Profesional, vendors.

Lawyers to the sponsor: Chadbourne & Parke (contracts and co-ordination), Hogan & Hartson (EPC and construction), Baker & Botts (fuel supply), Nauta Dutilh (Netherlands counsel), and Steel Hector Davis, Pena Prieto & Gamundi (Dominican Republic)

Market consultants: La Capra Associates

Engineer: KBR