Approximately $135 million of TECO-Panda’s debt has switched hands in the past week as banks involved in the initial underwriting sold down exposure ahead of a possible restructuring of the loans. A $25 million piece of TECO’s term loan with letters of credit traded around the 55 level, a $60 million piece without the letters of credit changed hands at 60, a trader said. Reportedly, a $50 million piece changed hands today.
Arab Banking Corp., Bank of Tokyo Mitsubishi, CIBC World Markets, HypoVereinsbank, Citigroup, Toronto Dominion, West LB, Calyon and Bank of New York were said to be among the potential sellers, according to two traders following the situation. The exact sellers could not be determined and officials at those firms either declined comment or did not return calls. More paper is expected to come out in the next couple of weeks as the original lenders are finally gaining permission to sell, one distressed trader noted.
According to the trader, the banks are trying to protect themselves from a possible restructuring of the power company. But several distressed funds are interested because of the steep discount and expected future improvements in the power plant’s performance. “The funds are betting that the project finance market will turn around, while the banks have deal fatigue and are looking to get out and on to new deals,” he noted. TECO’s bank debt is selling at a 40-point discount. “There are few assets with this type of price concession,” the source said.
The TECO-Panda paper is a part of larger bank financing that was put in place during the summer of 2001 to support the construction and operation of the Union and Gila River power stations. The effort was a joint venture between TECO Wholesale Generation, known at the time as TECO Power Services Corp., and Panda Energy International.
The original financing included $1.675 billion of non-recourse debt and $500 million in equity bridge loans. The bridge loans have been paid down. TECO bought out Panda's interest in the joint-venture in 2003 and TECO handed over the plants to the lenders earlier this year. Calls to an investor relations official at Teco were not returned.