Entergy has closed a $577 million deal backing recently acquired nuclear facilities. As well as taking the sponsor closer to its aim of dominance within the US nuclear industry, it has also been billed as the first nuclear project financing. The deal is some distance from a vanilla structure however, not only in terms of its risk allocation structure but also in the hypothetical use of the funds raised. Citibank and Barclays were the lead arrangers on the deal, which finally adds backing to the claims by the industry that recent visits to Dick Cheney's office might result in new capacity and new mandates.

Entergy bought two plants, 980MW Indian Point 3 and 825MW James A Fitzpatrick, for $967 million, including the plants, fuel, power purchase agreements and some decommissioning expenses. The seller, the New York Power Authority (NYPA), wanted out of the business, and was prepared to let Entergy pay for the sale in a series of seven annual equal instalments of $83.7 million.

The agreement works well for both sides, since annual payments guarantee a greater total price for the NYPA, about $17 million has been added to the price tag for an upfront cash deal. Entergy, on the other hand, did not have to either resort to its balance sheet or a firm commitment from lenders. The instalments allow Entergy to maintain a healthy-looking corporate debt-equity ratio, as is mandated by the regulators in its home state of Louisiana, but at the same time take the plants off balance-sheet.

$305 million of the loan is limited recourse, although Entergy has had to issue guarantees regarding operational and nuclear risk. One participant in the deal describes the loan as synthetic in nature in that some risk factors ? in particular decommissioning and offtake risk ? have been artificially put back to Entergy. The deal has also had to go through an additional layer of regulation, in that the actual licence to run the plant has to be approved by the Nuclear Regulatory Commission, which is anxious to ensure that it is dealing with an entity solid and well-capitalised enough to cover maintenance and other costs over the foreseeable life of the plant.

And Entergy does not get its hands on the decommissioning funds earmarked for the plants ? this $630 million war-chest is retained by the power authority until the plants actually retire, largely for tax reasons. Participants were Natexis, Scotiabank, Paribas, Credit Lyonnais, Dai-Ichi Kangyo Bank and Sumitomo, whilst coverages are structured according to the proportion output this contracted to the power authority in a given year.

But Entergy wants more, and has signed an agreement to buy the Vermont Yankee nuclear plant from its 12 New Hampshire utility owners for $180 million. This plant's output is fully contracted to the former owners, who rely in it for about 30% of their states'power needs, at a price that protects them from downward fluctuations in power prices. JP Morgan, the auction house of choice for nuclear plant owners (the above plants, Millstone) advised here.