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Derivatives

Acquisition Dispute Focuses On Swap

The outcome of a three-way tussle to acquire a U.K. power plant could hinge on a roughly GBP300 million (USD546 million) interest-rate swap tied to the 800 MW plant's project-level financing.

The outcome of a three-way tussle to acquire a U.K. power plant could hinge on a roughly GBP300 million (USD546 million) interest-rate swap tied to the 800 MW plant's project-level financing. Two of the bidders, Calpine and CGE Power, want to keep the out-of-the-money swap in place, but a third bidder, ScottishPower, is asking Damhead Creek Ltd to unwind the contract, a move that would likely cost the plant operator some GBP20 million.

The swap has a weighted-average coupon of 6.52% leaving it almost 2% out of the money, according to a banker close to the deal. Fixed-rate quarterly payments start at GBP194,000 this quarter and amortize to GBP111,000 in 2010.

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