Latin American Power Deal of the Year 2001
La Rosita is more of a US than a Mexican project. Over half of its
output is sold into Southern California, and it has one of the most
sizeable portions of uncovered debt yet seen on a Mexican power
project. Indeed, La Rosita is the most successful, and inventive,
uses of an anchor government power purchase agreement (PPA) that
the Mexican power sector has seen.
La Rosita is actually two separate power projects built together to benefit from the economies of scale inherent in a shared location. The main element is the La Rosita I plant (originally called Rosarito, but changed to La Rosita because of confusion with other projects) which is a 500MW plant bid out by the Mexican government and awarded June 16, 2000.
Because of the tight nature of the Comision Federal de Electricidad (CFE) bid process, sponsors need to find a way of either boosting the returns on a PPA or lowering their cost of capital. The most popular way of overcoming this obstacle is to overaggregate the units installed at the project site and find an industrial customer willing to pay above the tariff for its power. This has in the past been relatively simple (industry essentially cross-subsidises domestic use), and InterGen's Bajio project was one that went searching for extra customers on top of a CFE contract. La Rosita takes this concept further ? it sells over the border into the United States.
InterGen is fortunate that the plant's location helps it in this goal. The site chosen is 10km south of the US border in the state of Baja California Norte. The peculiarity of this region is not only that it is not connected with the rest of the Mexican grid, it is synchronised with that of California. It is also able to get its gas from a source other than state oil company Pemex.
This source is InterGen's affiliate Coral Energy (also controlled by Shell), which with a triple-A rating is a rarity in the energy marketing business. Coral has a tolling agreement with InterGen for a further 250MW of the plant's output, and supplies all of the gas to the plant. This will be supplied through the North Baja pipeline, scheduled to start construction as a joint venture between two potential customers ? PG&E Corporation and Sempra Energy.
La Rosita II is an entirely merchant facility that will sell its power, through Coral, into the Californian wholesale market. Its 310MW capacity will feature no explicit offtake credit support. To overcome this it is being treated as a separate financing, which uses the ground-breaking borrowing base approach of InterGen's US deals. This means that initially the leverage on, and later the distributions from, the project are variables dependent upon the proportion of contracted output and the past and forward price curves for power (for more details see the InterGen North America Borrowing Base report).
The first plant has a leverage consistent with a contracted facility ? in the 75% range ? whilst the second is initially at the 50% level. The loans provided to the plants, however, are not fixed amounts, and represent the total available debt capacity, and may be lower. For InterGen, the flexibility in operational profile is the most important aspect of the structure, although lender comfort is still at a relatively high level.
Three banks took mandated lead arranger roles ? Citigroup, BNP Paribas and Export Development Canada ? and joining at this top tier are three arrangers ? ANZ Investment Bank, SG and KBC. The first tier gave commitments of $75 million, while the next three committed $70 million. A further six banks ? Bancomex, Credit Lyonnais, Dexia, HypoVereinsbank, NordLB and Fortis ? took co-arranger roles for $65 million, although Bancomex' hold level is likely to be higher.
The financing breaks down into a $420 million loan covered by political risk insurance from EDC, and an uncovered commercial bank portion of $105 million. This has been compared by participants to EDC's own version of the A/B loan structure. The tenor of the covered portion is 15 years, that of the uncovered portion 11 years. In addition deal I was rounded out by a $20 million post- and pre-completion letter of credit guaranteeing the CFE's performance, a $70 million letter of credit for the Baja pipeline's obligations and a $20 million working capital facility, all of five years.
The deal is in syndication, and likely to perform well, although there has been an unusually large quantity of InterGen paper in the market (the aforementioned US deals). The sponsor's speciality has always been to create a strong level of support in the bank market with a structurally interesting deal that banks want to attach their names to. La Rosita is no exception, since cross-border power stations are rare and several institutions want to increase their exposure.
La Rosita is a deal that is so far from the norm for the Mexican Power sector that a list of firsts is almost superfluous. As well as the largest financing yet seen for a generation project, it also has a merchant component far greater that last year's Bajio financing. Word is that InterGen is still keen on pursuing other opportunities within the Mexican power sector, and would even go back to the relative tranquillity of pure CFE deals. If it can continue to build upon its first mover advantage it will be well-placed in the sector even if other North American upstarts such as AES, Sithe and Transalta move up a gear.
Energia Azteca
Status: closed December 2001
Location: Baja California Norte, Mexico
Description: two plant financing with a cross-border tolling agreement and 1060MW capacity
Sponsor: InterGen
Debt: $625 million
Arrangers: BNP Paribas, Citigroup, EDC (mandated leads), KBZ, ANZ Investment Bank
Maturity: 15 years covered, 11 years uncovered
Independent Engineer: Stone & Webster
Market consultant: PA Consulting
Lawyers to the borrower: Hunton & Williams
Lawyers to the lenders: Dewey Ballantine
La Rosita is actually two separate power projects built together to benefit from the economies of scale inherent in a shared location. The main element is the La Rosita I plant (originally called Rosarito, but changed to La Rosita because of confusion with other projects) which is a 500MW plant bid out by the Mexican government and awarded June 16, 2000.
Because of the tight nature of the Comision Federal de Electricidad (CFE) bid process, sponsors need to find a way of either boosting the returns on a PPA or lowering their cost of capital. The most popular way of overcoming this obstacle is to overaggregate the units installed at the project site and find an industrial customer willing to pay above the tariff for its power. This has in the past been relatively simple (industry essentially cross-subsidises domestic use), and InterGen's Bajio project was one that went searching for extra customers on top of a CFE contract. La Rosita takes this concept further ? it sells over the border into the United States.
InterGen is fortunate that the plant's location helps it in this goal. The site chosen is 10km south of the US border in the state of Baja California Norte. The peculiarity of this region is not only that it is not connected with the rest of the Mexican grid, it is synchronised with that of California. It is also able to get its gas from a source other than state oil company Pemex.
This source is InterGen's affiliate Coral Energy (also controlled by Shell), which with a triple-A rating is a rarity in the energy marketing business. Coral has a tolling agreement with InterGen for a further 250MW of the plant's output, and supplies all of the gas to the plant. This will be supplied through the North Baja pipeline, scheduled to start construction as a joint venture between two potential customers ? PG&E Corporation and Sempra Energy.
La Rosita II is an entirely merchant facility that will sell its power, through Coral, into the Californian wholesale market. Its 310MW capacity will feature no explicit offtake credit support. To overcome this it is being treated as a separate financing, which uses the ground-breaking borrowing base approach of InterGen's US deals. This means that initially the leverage on, and later the distributions from, the project are variables dependent upon the proportion of contracted output and the past and forward price curves for power (for more details see the InterGen North America Borrowing Base report).
The first plant has a leverage consistent with a contracted facility ? in the 75% range ? whilst the second is initially at the 50% level. The loans provided to the plants, however, are not fixed amounts, and represent the total available debt capacity, and may be lower. For InterGen, the flexibility in operational profile is the most important aspect of the structure, although lender comfort is still at a relatively high level.
Three banks took mandated lead arranger roles ? Citigroup, BNP Paribas and Export Development Canada ? and joining at this top tier are three arrangers ? ANZ Investment Bank, SG and KBC. The first tier gave commitments of $75 million, while the next three committed $70 million. A further six banks ? Bancomex, Credit Lyonnais, Dexia, HypoVereinsbank, NordLB and Fortis ? took co-arranger roles for $65 million, although Bancomex' hold level is likely to be higher.
The financing breaks down into a $420 million loan covered by political risk insurance from EDC, and an uncovered commercial bank portion of $105 million. This has been compared by participants to EDC's own version of the A/B loan structure. The tenor of the covered portion is 15 years, that of the uncovered portion 11 years. In addition deal I was rounded out by a $20 million post- and pre-completion letter of credit guaranteeing the CFE's performance, a $70 million letter of credit for the Baja pipeline's obligations and a $20 million working capital facility, all of five years.
The deal is in syndication, and likely to perform well, although there has been an unusually large quantity of InterGen paper in the market (the aforementioned US deals). The sponsor's speciality has always been to create a strong level of support in the bank market with a structurally interesting deal that banks want to attach their names to. La Rosita is no exception, since cross-border power stations are rare and several institutions want to increase their exposure.
La Rosita is a deal that is so far from the norm for the Mexican Power sector that a list of firsts is almost superfluous. As well as the largest financing yet seen for a generation project, it also has a merchant component far greater that last year's Bajio financing. Word is that InterGen is still keen on pursuing other opportunities within the Mexican power sector, and would even go back to the relative tranquillity of pure CFE deals. If it can continue to build upon its first mover advantage it will be well-placed in the sector even if other North American upstarts such as AES, Sithe and Transalta move up a gear.
Energia Azteca
Status: closed December 2001
Location: Baja California Norte, Mexico
Description: two plant financing with a cross-border tolling agreement and 1060MW capacity
Sponsor: InterGen
Debt: $625 million
Arrangers: BNP Paribas, Citigroup, EDC (mandated leads), KBZ, ANZ Investment Bank
Maturity: 15 years covered, 11 years uncovered
Independent Engineer: Stone & Webster
Market consultant: PA Consulting
Lawyers to the borrower: Hunton & Williams
Lawyers to the lenders: Dewey Ballantine
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