Two energy financings totaling $1.84 billion are heating up the market. Goldman Sachs and Credit Suisse First Boston are gearing up to launch a $1.14 billion loan for Covanta Energy Corp., while Goldman is pitching a $700 million credit for Cogentrix Energy. What sets these two deals apart from other energy loans in the market is that both have contracted cash flows. Cogentrix is virtually 100% contracted with investment grade-utilities and Covanta has contracts with municipalities, said a banker.
The Covanta loan, which is being pitched ahead of an April bank meeting, backs the acquisition of American Ref-Fuel Holdings Corp. (ARC) from DLJ Merchant Banking Partners and AIG Highstar Capital for approximately $2 billion. Accounts are already committing to the second-lien part of the financing, according to the lender.
The bank debt is likely to be split into two tranches. The first lien is expected to consist of a six-year, $100 million revolver; a seven-year, $340 million prefunded letter of credit facility; and a seven-year, $250 million "B" loan. The $450 million, eight year, second-lien tranche is expected to serve as a bridge loan. Pricing has not been decided. Calls to Scott Whitney, senior v.p. business development, were not returned.
Waste-to-energy operator Covanta is a subsidiary of Danielson Holding Corp., which in turn is owned by distressed funds Third Avenue Value Fund, D.E. Shaw Laminar Portfolios and SZ Investments. Danielson is paying $740 million in cash for ARC and is assuming $1.2 billion in debt. The combined company will own or operate 31 waste-to-energy facilities across 15 states that will have the capacity to dispose of 45,000 tons of trash per day and generate almost 1,200 megawatts of renewable energy.
Meanwhile, Goldman held a bank meeting last Wednesday at the Waldorf Astoria to launch syndication of a seven-year, $650 million term loan "B" for Cogentrix. The Goldman subsidiary bought equity interests in 11 power plants, a natural gas pipeline and related assets from National Energy & Gas Transmission at auction last January for $550 million. The new debt, which also includes a $50 million revolver arranged by BNP Paribas and Union Bank of California, will take out a bridge financing and existing bank debt. Pricing was not available on the new "B" tranche. John O'Connor, Cogentrix's senior v.p. finance and treasurer, did not return calls.
With the acquisition, Cogentrix's net generating capacity increases to more than 4200 megawatts. Of the 11 plants acquired, Cogentrix already had ownership in nine of them and is now the manager of 10 of the plants.
