Distressed investors are buying the bank debt of La Paloma Generating Project and there is some speculation that there could be a strategic buyer behind the trades. Scotia Capital, HypoVereinsbank and The Royal Bank of Scotland are among a handful of lenders that have each sold approximately $20-25 million pieces of the debt in the past month, and at least $100 million has traded during that time, said traders. The pieces have traded between the mid-to-high 80s up to 106 in a trade last week.
The project for the 1,121 MW merchant gas-fired plant was originally sponsored by National Energy & Gas Transmission (NEGT), formerly known as PG&E National Energy Group. A year ago, NEGT filed for bankruptcy after failing to repay $431 million under a revolver. Last month, as part of an agreement with creditors, NEGT transferred ownership of La Paloma to its lenders. La Paloma officials did not return calls.
The deal has multiple tranches with different priorities that trade as a strip. The tranches are rollup "A," residual "A," rollup "B," residual "B," working capital and construction loans. Banks hold different mixes, which is why the debt trades at such differing levels, a trader explained. The deal is led by Citigroup and was originally about $700 million. Officials at Scotia, ING, HVB and RBS declined comment.
Goldman Sachs and Bear Stearns were some of the desks that traded the name, a dealer said. Bankers at Bear Stearns did not return calls. A banker at Goldman declined comment.
Interest in the Kern County, Ca.-based plant is surging while the whole energy sector is up, a trader said. La Paloma has been a potential sale candidate for over a year, but a dispute over tax credits and a weak wholesale market prompted the plant's creditors to hold back from launching a sale. A second trader noted a claim held by La Paloma against NEGT has brought additional attention to the name. Now that NEGT has come out of bankruptcy, La Paloma is going to have a claim against it, he said. A spokeswoman for NEGT said the size of all claims against NEGT was still in the process of being determined.
According to Bloomberg, original lenders include Deutsche Bank, Société Générale, Citi, Bank of America, Bayerische Landesbank, Salomon Smith Barney, BNP Paribas, Crédit Lyonnais, Dresdner Bank, CoBank, DZ Bank, HVB,ING Bank, KBC Bank, Meespierson, Norddeutsche Landesbank and RBS.
