GSC pushes Complete merger as La Paloma downgraded
GSC Acquisition is attempting to gain approval from 80% of its shareholders for the acquisition of Complete Energy and its two power plants. But the $1.3 billion acquisition has to contend with several technical difficulties at both of the plants that Complete controls. The two plants are La Paloma, of which Complete owns 60%, a 1,022MW gas-fired power plant located near McKittrick, California, and Batesville, an 837MW gas-fired plant in Mississippi.
The two plants are subject to a total of $627 million in project debt, but have both experienced operating issues. These difficulties have led to Moody's downgrading La Paloma's roughly $270 million in first lien B loan debt from B1 to B2, and Batesville's bond debt from B1 to B3.
La Paloma has suffered from several forced outages during the last three years, including the summer period of 2008, which have drained its working capital facilities and prevented it from operating during periods when it could have earned strong margins. Nevertheless, the total debt on the project is low compared to the cost of building new plants, and if La Paloma can overcome its technical problems it would be well-placed to earn strong revenues.
Debt service coverage ratios for Batesville, according to Moody's, have been below 1x since 2007, and the borrower is likely to draw on its debt service reserve early in 2009 to meet its bond repayments. The plant currently has a power purchase agreement in place with Goldman Sachs' J Aron, but...
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