Coryton shapes the market
The first blow to UK independent power projects hit sponsors in
December 1997 with a statement from science, energy and industry
minister, John Battle calling for a review of the country's
dependence on gas-fired power plants. Battle stalled all Section 36
approvals ? the consent from the government which permits power
projects of over 50MW ? to begin construction. The situation was
aggravated a few months later when the government said that Section
14 ? a gas consent ? might be affected by the moratorium also.
Fortunately for InterGen, sponsor of the 775MW natural gas-fired Coryton power plant, construction had already started on their plant and as such Coryton was one of the few deals to proceed with financing. According to Peter Blake, partner at law firm Clifford Chance in London and project counsel, Coryton succeeded in gaining approval where others failed because ?legally we were on very strong ground?. But he adds that ?InterGen handled the Department of Trade & Industry exceptionally well.?
?Credit Suisse First Boston has already been working on our Spalding project so when the moratorium was imposed we transferred the whole financing process from Spalding to Coryton,? says Neil Smith, managing director for InterGen UK in Edinburgh.
The bank also has a strong relationship with InterGen through and has been involved in previous independent power transactions including the 770MW Rocksavage facility in Runcorn, UK.
The Credit Suisse First Boston-led deal which emerged during 1998, has changed from its original structure, with more aggressive pricing following events in Russia. The £476 million ($775.6 million) financing package is split between a £139 million equity bridge, a £284 million senior long-term credit facility, a £48 million letter of credit facility and a £5 million working capital facility. Pricing on the 18-year loan ranges from 120 basis points over Libor during to construction stepping in stages to 160bp.
Coryton is one of the few true merchant power plants to be underwritten in the UK and accordingly the project has been financed without any long-term offtake arrangements with a substantial portion of the fuel supply requirements uncontracted. And, following the moratorium, the plant is one of only a handful of power transactions in the market.
But want distinguishes it from other power deals financed in the UK is that it has been financed at a time when the pool is being abolished. ?It has taken 10 years for bankers to get comfortable with pool price risk in the UK but Coryton is being realized just as the new electric trading system is being implemented.?
According to Smith it is the creativity of the deal's hedging system which makes it stand out. Once the plant is operational, InterGen's trading group will place short, medium and long-term hedges. ?Coryton has purchased two tranches of gas ? a 15-year tranche and a seven-year tranche ? and there is some level of indexation on the gas escalation which creates a partial hedge,? says Smith.
As with many deals the true test of its acceptability occurs during syndication. At the co-arranging and sub-underwriting level, which took place at the end of 1998, seven relationship banks came into the deal. General syndication launched in February and early indications suggest that banks are eager to grab a piece of the debt. ?The strong response during the sub-underwriting and co-arranger phase has created a good momentum for general syndication,? says a source at Credit Suisse First Boston in London. ?But more importantly banks are hungry for UK power deals. If you look at the evolution of deals in the UK from Rocksavage, to AES Barry and Enfield, each time there's been another step and we've taken it a little further with this transaction.?
Fortunately for InterGen, sponsor of the 775MW natural gas-fired Coryton power plant, construction had already started on their plant and as such Coryton was one of the few deals to proceed with financing. According to Peter Blake, partner at law firm Clifford Chance in London and project counsel, Coryton succeeded in gaining approval where others failed because ?legally we were on very strong ground?. But he adds that ?InterGen handled the Department of Trade & Industry exceptionally well.?
?Credit Suisse First Boston has already been working on our Spalding project so when the moratorium was imposed we transferred the whole financing process from Spalding to Coryton,? says Neil Smith, managing director for InterGen UK in Edinburgh.
The bank also has a strong relationship with InterGen through and has been involved in previous independent power transactions including the 770MW Rocksavage facility in Runcorn, UK.
The Credit Suisse First Boston-led deal which emerged during 1998, has changed from its original structure, with more aggressive pricing following events in Russia. The £476 million ($775.6 million) financing package is split between a £139 million equity bridge, a £284 million senior long-term credit facility, a £48 million letter of credit facility and a £5 million working capital facility. Pricing on the 18-year loan ranges from 120 basis points over Libor during to construction stepping in stages to 160bp.
Coryton is one of the few true merchant power plants to be underwritten in the UK and accordingly the project has been financed without any long-term offtake arrangements with a substantial portion of the fuel supply requirements uncontracted. And, following the moratorium, the plant is one of only a handful of power transactions in the market.
But want distinguishes it from other power deals financed in the UK is that it has been financed at a time when the pool is being abolished. ?It has taken 10 years for bankers to get comfortable with pool price risk in the UK but Coryton is being realized just as the new electric trading system is being implemented.?
According to Smith it is the creativity of the deal's hedging system which makes it stand out. Once the plant is operational, InterGen's trading group will place short, medium and long-term hedges. ?Coryton has purchased two tranches of gas ? a 15-year tranche and a seven-year tranche ? and there is some level of indexation on the gas escalation which creates a partial hedge,? says Smith.
As with many deals the true test of its acceptability occurs during syndication. At the co-arranging and sub-underwriting level, which took place at the end of 1998, seven relationship banks came into the deal. General syndication launched in February and early indications suggest that banks are eager to grab a piece of the debt. ?The strong response during the sub-underwriting and co-arranger phase has created a good momentum for general syndication,? says a source at Credit Suisse First Boston in London. ?But more importantly banks are hungry for UK power deals. If you look at the evolution of deals in the UK from Rocksavage, to AES Barry and Enfield, each time there's been another step and we've taken it a little further with this transaction.?
| Coryton power plant |
|
Total cost: £470 million ($765.8 million) Sponsor: InterGen (jointly owned by Bechtel and Shell) Description: The 750MW gas-fired power plant is one of the only large power plants which has been accepted from the UK government's moratorium on gas-fired power stations. The project, which is located close to the Shellhaven and BP Coryton refineries in Essex, is the first merchant power plant of this type in the UK The project is 10 years old. InterGen bought the option to take over the plant in the middle of 1997 after plans outlined by the existing developers stalled. Financing:
Pricing on the three non-recourse finance tranches (B to D) starts at 120bp up to and including completion, rising to 130bp from final completion until June 30. The pricing rises to 135bp from July 1 2006 to June 30 2011, 145bp from July 1 2011 to June 30 2016 and 160bp thereafter. Arrangers: Credit Suisse First Boston Additional underwriters: Bank of America, HypoVereinsbank, ABN AMRO, Banque Paribas, SG, KBC and Lloyds Syndication terms: General syndication launched on February 8 and a bank presentation was held in London on February 12 and commitments are expected by April. Banks are being offered three levels of commitment during syndication ? senior lead manager at £20 million, lead managers at $15 million and managers at £10 million. Fees are paid on a pro rata basis between the A tranche and the non-recourse tranches. On the A tranche the fees are 15bp, 12.5bp and 10bp for each level. And for tranche B and C they are: 45bp, 37.5bp and 30bp. Lump-sum turnkey contract: Bechtel Equipment supplier: ABB Lawyers: Clifford Chance (sponsors) and Shearman & Sterling (lenders). |
Request a Demo
Interested in IJGlobal? Request a demo to discuss a trial with a member of our team. Talk to the team to explore the value of our asset and transaction databases, our market-leading news, league tables and much more.