PSEG Power debuts
PSEG Power has closed an $822 million portfolio financing for its
midwest assets ? the first such deal since the spin-off of the
generation company from his utility parent, Public Service
Enterprise Group. The deal shares several features with the recent
Panda/Teco deal, not least the apparently rapturous response that
it ha received from co-arranger banks ? currently amongst the
choosiest players in the bank market. And PSEG wants to grow its
generation base fast.
PSEG has followed the path common to many US power companies in gathering its domestic generation and trading businesses into one unregulated entity. In part this is a result of New Jersey deregulation, but also recognition that the US market now demands a more integrated and flexible approach. Whilst PSEG Global will continue to operate internationally, and keeps control of certain Texan and Californian assets, it is Power that now becomes the major growth vehicle for PSEG.
The financing here covers two plants ? in Indiana and Ohio? that will operate in the ECAR market. The first is Lawrenceburg, a 1150MW combined cycle plant located in the south-east of Indiana, whilst the second is Waterford, an 850MW combined-cycle plant in Washington County, Ohio. Construction has started on both plants, which should both be operational by the middle of 2003.
The plants started life as projects under the control of PSEG Global, and have since been transferred to Power, with the bulk of development and initial construction work undertaken by the latter. As a result, Global now controls only a few Californian properties and the joint venture plants located in Texas under a joint venture with Panda ? Guadelupe and Odessa ? since these are covered by existing bond indentures. Power has set itself up as a new and distinct credit, as evidenced by the $1.8 billion corporate bond issue that it completed earlier in 2001.
The deal, however, serves as something of an introduction to the Power credit for project finance lenders. The three arrangers, Credit Suisse First Boston (main negotiating bank and bookrunner), Bank of America (administrative bank) and Scotia Capital (documentation bank), have a history with PSEG, and also strong distribution capabilities in Europe. Retail syndication will again see the arranger heading over the Atlantic with prospective bank meetings in both London and Frankfurt. According to Dan Cregg, director of finance at PSEG Power, ?we think we'll have a decent pull there, although I don't know how much of an overlap there will be with lenders to Global. The banks there have a keen interest in the US power market in general?.
The deal consists in effect of three facilities: one of $335 million for Waterford, one of $445 million for Lawrenceburg and a $22 million letter of credit covering the interconnection agreement with local utility AEP. The main facilities have a four-year mini-perm tenor. Moreover, the output of the plants will be covered by a five-year tolling agreement with PSEG's trading arm. Cregg describes the arm as ?a hidden gem in PSEG Enterprise, which we've used successfully since 1997 in a very volatile market. We trade around our assets and don't take up huge speculative positions?. ECAR is a very attractive region at present, with fewer overbuild concerns than elsewhere and very reasonable load growth.
The deal occupies a very comfortable niche amongst the other facilities that have come to market this quarter, neither single asset nor portfolio in character. The nearest comparison, again, is the Panda/Teco deal, although the arrangers are at pains to point out that the deal is contracted, not merchant, as well as smaller. Although there is a cross-collateralisation of excess cash-flows, there are believed to be fewer cross-default provisions for PSEG Power. Those close to the deal say only that the structure of the loan encourages asset flexibility.
The killer advantage that PSEG has is in the pricing. Since the Panda/Teco transaction a few dissenting voices have suggested that that deal was priced at a fairly generous level to start with ? at least one reason for the its popularity with participants. Power is understood to come have come out with pricing of between 137.5bp over libor for construction, stepping up to 150bp for the last two years of the loan's life. The gap between the two deals ? between 25 and 50bp according to the year ? is probably explained by the heightened merchant risk, although Power came in without a tweak. Says Cregg, ?We wouldn't have been happy to have to increase the price, but then we had a lot of discussions on the pricing early on. It helps, though, that we're a strong, cash-rich sponsor, coming off the back of a successful bond financing?.
Those attending early bank meetings said that promises of future business have been made implicit to banks willing to commit to the deal. This should, however, have been obvious to those planning to invest in a company whose stated goal is to increase its generating base by at least 18000MW over the next three years. At least three other plants are in the offing, a 580MW CCGT plant at Sidney, Illinois, a 340MW peaker in Morristown, Indiana, and a 1100MW CCGT in Hancock County, Ohio.
The plants included here have Duke/ Fluor Daniel doing the EPC work and use General Electric 7FA turbines. The turbines have been held on balance sheet, and have not been included in any warehouse facility. Nevertheless, Power is apparently sitting on over 70 turbines either on order or ready for delivery. Banks committing for a $75 million take are Abbey National, ANZ, Bank of Scotland, BNP Paribas, CoBank, Credit Agricole, Dexia, FleetBoston, Hypovereinsbank, ING, IntesaBCI and Union Bank of California.
PSEG's future financing plans are not set in stone ? the sponsor gives every impression that it is prepared to be highly opportunistic in sourcing economically attractive capital.
PSEG has followed the path common to many US power companies in gathering its domestic generation and trading businesses into one unregulated entity. In part this is a result of New Jersey deregulation, but also recognition that the US market now demands a more integrated and flexible approach. Whilst PSEG Global will continue to operate internationally, and keeps control of certain Texan and Californian assets, it is Power that now becomes the major growth vehicle for PSEG.
The financing here covers two plants ? in Indiana and Ohio? that will operate in the ECAR market. The first is Lawrenceburg, a 1150MW combined cycle plant located in the south-east of Indiana, whilst the second is Waterford, an 850MW combined-cycle plant in Washington County, Ohio. Construction has started on both plants, which should both be operational by the middle of 2003.
The plants started life as projects under the control of PSEG Global, and have since been transferred to Power, with the bulk of development and initial construction work undertaken by the latter. As a result, Global now controls only a few Californian properties and the joint venture plants located in Texas under a joint venture with Panda ? Guadelupe and Odessa ? since these are covered by existing bond indentures. Power has set itself up as a new and distinct credit, as evidenced by the $1.8 billion corporate bond issue that it completed earlier in 2001.
The deal, however, serves as something of an introduction to the Power credit for project finance lenders. The three arrangers, Credit Suisse First Boston (main negotiating bank and bookrunner), Bank of America (administrative bank) and Scotia Capital (documentation bank), have a history with PSEG, and also strong distribution capabilities in Europe. Retail syndication will again see the arranger heading over the Atlantic with prospective bank meetings in both London and Frankfurt. According to Dan Cregg, director of finance at PSEG Power, ?we think we'll have a decent pull there, although I don't know how much of an overlap there will be with lenders to Global. The banks there have a keen interest in the US power market in general?.
The deal consists in effect of three facilities: one of $335 million for Waterford, one of $445 million for Lawrenceburg and a $22 million letter of credit covering the interconnection agreement with local utility AEP. The main facilities have a four-year mini-perm tenor. Moreover, the output of the plants will be covered by a five-year tolling agreement with PSEG's trading arm. Cregg describes the arm as ?a hidden gem in PSEG Enterprise, which we've used successfully since 1997 in a very volatile market. We trade around our assets and don't take up huge speculative positions?. ECAR is a very attractive region at present, with fewer overbuild concerns than elsewhere and very reasonable load growth.
The deal occupies a very comfortable niche amongst the other facilities that have come to market this quarter, neither single asset nor portfolio in character. The nearest comparison, again, is the Panda/Teco deal, although the arrangers are at pains to point out that the deal is contracted, not merchant, as well as smaller. Although there is a cross-collateralisation of excess cash-flows, there are believed to be fewer cross-default provisions for PSEG Power. Those close to the deal say only that the structure of the loan encourages asset flexibility.
The killer advantage that PSEG has is in the pricing. Since the Panda/Teco transaction a few dissenting voices have suggested that that deal was priced at a fairly generous level to start with ? at least one reason for the its popularity with participants. Power is understood to come have come out with pricing of between 137.5bp over libor for construction, stepping up to 150bp for the last two years of the loan's life. The gap between the two deals ? between 25 and 50bp according to the year ? is probably explained by the heightened merchant risk, although Power came in without a tweak. Says Cregg, ?We wouldn't have been happy to have to increase the price, but then we had a lot of discussions on the pricing early on. It helps, though, that we're a strong, cash-rich sponsor, coming off the back of a successful bond financing?.
Those attending early bank meetings said that promises of future business have been made implicit to banks willing to commit to the deal. This should, however, have been obvious to those planning to invest in a company whose stated goal is to increase its generating base by at least 18000MW over the next three years. At least three other plants are in the offing, a 580MW CCGT plant at Sidney, Illinois, a 340MW peaker in Morristown, Indiana, and a 1100MW CCGT in Hancock County, Ohio.
The plants included here have Duke/ Fluor Daniel doing the EPC work and use General Electric 7FA turbines. The turbines have been held on balance sheet, and have not been included in any warehouse facility. Nevertheless, Power is apparently sitting on over 70 turbines either on order or ready for delivery. Banks committing for a $75 million take are Abbey National, ANZ, Bank of Scotland, BNP Paribas, CoBank, Credit Agricole, Dexia, FleetBoston, Hypovereinsbank, ING, IntesaBCI and Union Bank of California.
PSEG's future financing plans are not set in stone ? the sponsor gives every impression that it is prepared to be highly opportunistic in sourcing economically attractive capital.
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