A deal by K-Road Venture to acquire the 3 GW Exelon Boston Generating experienced an 11th hour hitch when the $1.4 billion project paper backing the facilities shot up from levels of 115 to 130 in the secondary market.
K-Road had submitted an offer of about 110-115 for the plants, which was green-lighted by the hedge funds holding onto the majority of the debt, but the pricing spike forced a renegotiation of the deal terms to reflect the upswing, noted several hedge fund managers close to the transaction. "The [secondary market] is efficient and it was telling us that K-Road was getting an unacceptable windfall," said one follower. K-Road CEO William Kriegle declined to comment on the pending
It is believed that a renewed deal in the vicinity of 115-130 was set and other deal terms were tweaked but complete details could not be learned. The transfer is set to close imminently but will not be cemented until Federal Regulatory Energy Commission approval is obtained over the next few months.
The pricing spike occurred as a result of a promising ruling announced by the FERC, which is anticipated to facilitate the implementation of Locational Installed Capacity—a move that bodes well for IPPs in the New England area because it will help compensate producers more efficiently during peak demand periods. The jump in pricing was unexpected because many watchers had anticipated the FERC announcement and believed that it was already priced into the trading levels.
The FERC view on LICAP benefited a number of generation facilities in the NEPOOL market including loans supporting MachGen facilities, which saw a move in the loan market from levels of 104 to 107.5 last week, the 3.7 GW package includes a facility in Massachusetts. Debt backing Lake Road, an 840 MW plant in Milford, Ct. jumped from 95 to 105. "People are starting to realize there companies will start to get payments sooner than people thought," said one money manager.
Credit Suisse First Boston will look to arrange $600 million in debt financing for the portfolio, which was developed by Exelon Corp. The Boston portfolio includes Mystic 7, 8 and 9, Fore River, all 832 MW gas-fired plants, along with Mystic 7, a 560 MW oil and gas-fired plant.
