Boston Generating's bank debt shot up from 116-120 to 127-130 after the Federal Regulatory Energy Commission approved a measure that will change the way power producers in New England are paid. The rise in the price, which is a further boost to a group of distressed investors that bought the debt at discounted levels, is also being driven by an agreement for K Road Power to acquire an equity ownership interest in the assets.
A banker on a distressed desk pointed to The New England Locational Installed Capacity proposal as the latest positive news on the name. This removes uniform capacity payments and instead varies pricing based on demand from a specific region. This will be a boost to generators in New England, where there are regions short on power.
In 2000 Boston Generating, a subsidiary of Exelon Corp., entered into a $1.25 billion non-recourse credit line to back the construction of plants known as Mystic 8, 9 and Fore River. The project was not completed on time, leading to an event of default and last July the assets were transferred to the lenders. Since then the debt has climbed from the high 70s with ownership moving from the original BNP-Paribas-led creditor group to a group of 44 hedge funds. These include Citadel Investments, Cargill, Farallon Capital Management, GLG Partners, John A Levin & Co. and Longacre Management (LMW, 5/20).
Now Credit Suisse First Boston is planning to arrange $600 million in financing to back the purchase of the assets by K Road, which will also manage the plants. Expectations are that about $800 million of the debt will be converted into equity and the remainder will be refinanced. It could not be determined if K Road will have to pay more following the rise in the levels. Barry Sullivan, vice chairman and chief operating officer of K Road, did not return calls.
