Callide: olympic hurdles
If there are any number of events that could delay a project's
financial close, from environmental permitting problems, to an
intervening financial crisis or insufficient banking appetite, this
is probably the first time that a major sporting spectacle has kept
a project deal waiting.
Fittingly, it was the Sydney Olympics in sports mad Australia which put on hold for four weeks the financial close of InterGen's acquisition of Shell Coal's Callide power station stake.
Callide is a 2X 420MW coal fired power station in Queensland, currently under construction and now 75% complete. Shell Coal and CS Energy were the original sponsors of the project but when Shell decided to exit the coal business in Australia it also decided to spin off its 50% interest in Callide, as a separate asset to the rest of the coal business. After a bidding process in May, Intergen was selected as the buyer of the asset and a sale and purchase agreement was signed in July.
The total financing package, says Richard McIndoe, vice-president of finance for InterGen's Asia Pacific region, is just over A$600 million. Funding comes in two distinct tranches, an A$310 million non recourse loan and an equity bridge loan up to A$300 million. ?The equity bridge loan is a similar structure to what we have used in previous financings as it is more tax efficient to borrow funds and then pay back using our own equity when the plant goes operational,? says McIndoe. Under the non-recourse tranche maximum gearing and other financial covenants are similar to Intergen's financing for the Millmerran power station. The equity bridge loan, says a banker close to the deal, features a guarantee from Shell and an AA- letter of credit from Bechtel, InterGen's two shareholders.
Three banks, Bank of America, BNP Australia and National Australia Bank are arranging the facility. Market sources say that a limited syndication will follow financial close. The equity bridge loan carries a commitment fee of 15 basis points and is priced at a margin of 35 basis points. The non recourse facility has a commitment fee of 50 basis points and is priced at a margin of 1.4% during construction. (The construction period will last another 15 months).
After construction McIndoe says the non recourse loan converts into a bullet tranche and an amortizing tranche. The seven-year bullet pays 1.5% for years one to five and 1.7% for years six and seven. The 13.5 year amortizing tranche is interest only in years one and two. Margins are 1.5% in years one to five, 1.7% in years six to 10 and 1.9% in years 11 to 13.5.
The Callide financing is evidence of downwards pricing pressure in the Australian power market. ?This year,? one commentator explains, ?the banking community is not going to make the kind of budget numbers they expected to out of the sale of transmission, distribution and other power asset sales.? That's because, the source says, over the 10 months purchasers have often not used the usual non recourse bank debt financing options and have instead gone for capital markets financing or higher levels of shareholder support. Since there is less power asset paper in the market there has inevitably been a reduction in pricing.
Although direct comparisons are always difficult, financing for the Millmerran power station, which closed on October 15 last year, featured a non recourse tranche with an annualized margin of 1.55% over BBSY during the construction period. Post Completion, the margin for the bullet and amortizing term loan tranches for years one to five of the operational period will be 1.6% over BBSY, rising to 1.80% over BBSY for years six to nine of the amortizing term loan and 2% over BBSY for years 10 to 12.
The financial package replaces Shell Coal's original financing for the plant. However, as Callide's ownership is structured around an unincorporated joint venture (similar to other large scale projects like the North West Shelf natural gas development) the separate owners are financing their own share of the project separately. CS Energy's funding needs have been met by loans from the Queensland government.
McIndoe also points out that since the Callide deal is an acquisition of a power station already under construction, the InterGen financing does not represent additional new generating capacity to the Queensland market. Financiers have therefore been able to use supply and demand analysis and pool price profiles which were very similar to those used in the Millmerran fundraising.
Although there is currently a shortage of generating capacity in the Queensland market at present, the Millmerran and Callide new builds will bring electricity supply and demand close to equilibrium for several years. Longer term, analysts estimate around 2005 or 2006, new natural gas power stations are expected to be introduced into the market. But because demand is expected to have risen throughout the next five years, pool prices are not forecast to be endangered by the new supply.
Because InterGen now owns two large power generation assets in the Queensland market, McIndoe says the company will consider refinancing the two assets as a joint portfolio (combined they will account for 1260 MW of generating capacity in the state) at a later date. The refinancing may occur, says the vice-president, once Callide is operational and when Millmerran is near to completion.
Fittingly, it was the Sydney Olympics in sports mad Australia which put on hold for four weeks the financial close of InterGen's acquisition of Shell Coal's Callide power station stake.
Callide is a 2X 420MW coal fired power station in Queensland, currently under construction and now 75% complete. Shell Coal and CS Energy were the original sponsors of the project but when Shell decided to exit the coal business in Australia it also decided to spin off its 50% interest in Callide, as a separate asset to the rest of the coal business. After a bidding process in May, Intergen was selected as the buyer of the asset and a sale and purchase agreement was signed in July.
The total financing package, says Richard McIndoe, vice-president of finance for InterGen's Asia Pacific region, is just over A$600 million. Funding comes in two distinct tranches, an A$310 million non recourse loan and an equity bridge loan up to A$300 million. ?The equity bridge loan is a similar structure to what we have used in previous financings as it is more tax efficient to borrow funds and then pay back using our own equity when the plant goes operational,? says McIndoe. Under the non-recourse tranche maximum gearing and other financial covenants are similar to Intergen's financing for the Millmerran power station. The equity bridge loan, says a banker close to the deal, features a guarantee from Shell and an AA- letter of credit from Bechtel, InterGen's two shareholders.
Three banks, Bank of America, BNP Australia and National Australia Bank are arranging the facility. Market sources say that a limited syndication will follow financial close. The equity bridge loan carries a commitment fee of 15 basis points and is priced at a margin of 35 basis points. The non recourse facility has a commitment fee of 50 basis points and is priced at a margin of 1.4% during construction. (The construction period will last another 15 months).
After construction McIndoe says the non recourse loan converts into a bullet tranche and an amortizing tranche. The seven-year bullet pays 1.5% for years one to five and 1.7% for years six and seven. The 13.5 year amortizing tranche is interest only in years one and two. Margins are 1.5% in years one to five, 1.7% in years six to 10 and 1.9% in years 11 to 13.5.
The Callide financing is evidence of downwards pricing pressure in the Australian power market. ?This year,? one commentator explains, ?the banking community is not going to make the kind of budget numbers they expected to out of the sale of transmission, distribution and other power asset sales.? That's because, the source says, over the 10 months purchasers have often not used the usual non recourse bank debt financing options and have instead gone for capital markets financing or higher levels of shareholder support. Since there is less power asset paper in the market there has inevitably been a reduction in pricing.
Although direct comparisons are always difficult, financing for the Millmerran power station, which closed on October 15 last year, featured a non recourse tranche with an annualized margin of 1.55% over BBSY during the construction period. Post Completion, the margin for the bullet and amortizing term loan tranches for years one to five of the operational period will be 1.6% over BBSY, rising to 1.80% over BBSY for years six to nine of the amortizing term loan and 2% over BBSY for years 10 to 12.
The financial package replaces Shell Coal's original financing for the plant. However, as Callide's ownership is structured around an unincorporated joint venture (similar to other large scale projects like the North West Shelf natural gas development) the separate owners are financing their own share of the project separately. CS Energy's funding needs have been met by loans from the Queensland government.
McIndoe also points out that since the Callide deal is an acquisition of a power station already under construction, the InterGen financing does not represent additional new generating capacity to the Queensland market. Financiers have therefore been able to use supply and demand analysis and pool price profiles which were very similar to those used in the Millmerran fundraising.
Although there is currently a shortage of generating capacity in the Queensland market at present, the Millmerran and Callide new builds will bring electricity supply and demand close to equilibrium for several years. Longer term, analysts estimate around 2005 or 2006, new natural gas power stations are expected to be introduced into the market. But because demand is expected to have risen throughout the next five years, pool prices are not forecast to be endangered by the new supply.
Because InterGen now owns two large power generation assets in the Queensland market, McIndoe says the company will consider refinancing the two assets as a joint portfolio (combined they will account for 1260 MW of generating capacity in the state) at a later date. The refinancing may occur, says the vice-president, once Callide is operational and when Millmerran is near to completion.
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