Campeche
Syndication for one of the longest term power project financings to
date in Mexico closed oversubscribed on December 22. The $133.6
million loan was secured for Transalta Campeche SA, a special
purpose company formed by TransAlta Corporation, to build, own and
operate a 250MW gas-fired facility in the state of Campeche,
Mexico. The deal was joint lead arranged by Canada's Export
Development Corporation (EDC) and Bank of America Securities (BAS).
The latter also underwrote an interest rate swap to enable the
borrower to effectively hedge its exposure to interest rate risk
over the sixteen year term of the debt facility. TransAlta provides
a pre-completion guarantee.
Aside from establishing a possible benchmark tenor for Mexican power financings, the deal is also noteworthy for its commercial structure or, rather, the notable absence of multilateral cover, formerly indispensable for such transactions. This casts the project, located in the less developed Yucatan region, as a riskier prospect than before. Mitigating these risks was the principal challenge for the banking team.
?The main question was how to get a 16 year deal done without a multilateral umbrella. So the challenge was to put together a package with PRI which made investors comfortable,? says Bank of America's Alfred Bacchi. He adds, ?The real success of this project was achieving this groundbreaking tenor while giving investors a structure they were comfortable with.?
To accomplish this, then, the EDC stepped in to provide full comprehensive solution to the transaction, underwriting the full PRI and arranging and underwriting 50% of the debt. It underwrote $122 million over a 16 year term and reissued a large portion of its coverage with the private sector. EDC also expects to finalize a further $18 million in coverage to lenders for an interest rate swap agreement ? the first time that EDC has customized coverage for such an instrument.
The 16 year tenor introduced a unique challenge to the political risk insurance structuring, as most insurers are mandated to take exposure of up to 15 years. EDC was able to meet the tenor requirements of this coverage as a result of some intricate structuring between EDC and its reinsurers.
Says the EDC's Sandy Reid, ?PRI was the key motivator for the bank market in going for a 16 year tenor. But the sponsor support was also critical. This really was a fully collaborative effort between the EDC, Bank of America and TranAlta?
Arrangers are ANZ Investment Bank and Industrial bank of Japan (IBJ). Coarrangers are Bayerische Landesbank Girozentrale and Dexia Public Finance Bank. Lead managers are Fuji Bank and Helaba. Bank of America is the administrative agent for the facility.
Total project cost is estimated at $188 million and will operate under a 25 year power purchase agreement with the Comision Federal de Electricidad (CFE), with gas supplied under a long term contract with Pemex Gas y Petroquimica Basica. The project will use a Mitsubishi 501F gas turbine, and will be constructed by ICA Fluor Daniel. The facility will be operated by an affiliate of TransAlta. Commercial operation is projected for first quarter 2003.
Under the 25 year power purchase agreement, TransAlta will sell 100% of the electricity produced to CFE. Fuel will be supplied by state owned company Petroleos Mexicanos (PEMEX).
Indeed, CFE's support was critical. Says Reid, ?the underlying support was strong and we were able to move very quickly.? So quickly, in fact, that this was one of the quickest deals of its kind to close in Mexico. Moreover, this was the first deal in which PEMEX's and CFE's responsibilities were split, in a move towards the privatization of both markets.
The deal was full recourse through completion. Transalta provided supports on some details, for example, fuel variation: if, in a shortfall scenario, availability parameters are not met, Transalta will step in. Explains TransAlta's Frank Hawkins, ?the key to this deal was our ability to maximize leverage and term by placing risk precisely where it belonged.?
Mexico fits Transalta's growth strategy in a number of respects?its electricity market is growing rapidly, urged on by the government's moves to stimulate foreign investment and, as importantly, by the sheer rate of economic growth in the country. And. of course, NAFTA provides a comfortable route for a Canadian company into Mexico. TransAlta, with more than $6.6 billion in assets, is concentrating on building up its generation and transmission assets, while remaining a successful developer of gas fired independent power projects in Canada, the United States, Mexico and Australia.
Aside from establishing a possible benchmark tenor for Mexican power financings, the deal is also noteworthy for its commercial structure or, rather, the notable absence of multilateral cover, formerly indispensable for such transactions. This casts the project, located in the less developed Yucatan region, as a riskier prospect than before. Mitigating these risks was the principal challenge for the banking team.
?The main question was how to get a 16 year deal done without a multilateral umbrella. So the challenge was to put together a package with PRI which made investors comfortable,? says Bank of America's Alfred Bacchi. He adds, ?The real success of this project was achieving this groundbreaking tenor while giving investors a structure they were comfortable with.?
To accomplish this, then, the EDC stepped in to provide full comprehensive solution to the transaction, underwriting the full PRI and arranging and underwriting 50% of the debt. It underwrote $122 million over a 16 year term and reissued a large portion of its coverage with the private sector. EDC also expects to finalize a further $18 million in coverage to lenders for an interest rate swap agreement ? the first time that EDC has customized coverage for such an instrument.
The 16 year tenor introduced a unique challenge to the political risk insurance structuring, as most insurers are mandated to take exposure of up to 15 years. EDC was able to meet the tenor requirements of this coverage as a result of some intricate structuring between EDC and its reinsurers.
Says the EDC's Sandy Reid, ?PRI was the key motivator for the bank market in going for a 16 year tenor. But the sponsor support was also critical. This really was a fully collaborative effort between the EDC, Bank of America and TranAlta?
Arrangers are ANZ Investment Bank and Industrial bank of Japan (IBJ). Coarrangers are Bayerische Landesbank Girozentrale and Dexia Public Finance Bank. Lead managers are Fuji Bank and Helaba. Bank of America is the administrative agent for the facility.
Total project cost is estimated at $188 million and will operate under a 25 year power purchase agreement with the Comision Federal de Electricidad (CFE), with gas supplied under a long term contract with Pemex Gas y Petroquimica Basica. The project will use a Mitsubishi 501F gas turbine, and will be constructed by ICA Fluor Daniel. The facility will be operated by an affiliate of TransAlta. Commercial operation is projected for first quarter 2003.
Under the 25 year power purchase agreement, TransAlta will sell 100% of the electricity produced to CFE. Fuel will be supplied by state owned company Petroleos Mexicanos (PEMEX).
Indeed, CFE's support was critical. Says Reid, ?the underlying support was strong and we were able to move very quickly.? So quickly, in fact, that this was one of the quickest deals of its kind to close in Mexico. Moreover, this was the first deal in which PEMEX's and CFE's responsibilities were split, in a move towards the privatization of both markets.
The deal was full recourse through completion. Transalta provided supports on some details, for example, fuel variation: if, in a shortfall scenario, availability parameters are not met, Transalta will step in. Explains TransAlta's Frank Hawkins, ?the key to this deal was our ability to maximize leverage and term by placing risk precisely where it belonged.?
Mexico fits Transalta's growth strategy in a number of respects?its electricity market is growing rapidly, urged on by the government's moves to stimulate foreign investment and, as importantly, by the sheer rate of economic growth in the country. And. of course, NAFTA provides a comfortable route for a Canadian company into Mexico. TransAlta, with more than $6.6 billion in assets, is concentrating on building up its generation and transmission assets, while remaining a successful developer of gas fired independent power projects in Canada, the United States, Mexico and Australia.
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