Investors last week showed strong interest in Boston Generating's first and second lien term loans, which broke for trading well over par. The $350 million first lien loan came out in the 102-103 range, while the $300 million second lien loan hit 104-105. "People are bullish on the company. It is a good credit," said a trader. Another trader said he expected the loans to break high because they are well covered with a good coupon. The second lien is priced at LIBOR plus 630 basis points, while the first lien is priced at LIBOR plus 325 basis points.
The new debt results from the restructuring of $1.2 billion of Boston Generating's old debt. K Road Power, which targets acquisitions and investments in the U.S. power industry, has bought a 10% equity interest in Boston Generating and has agreed to manage its operations. As part of the deal, $1.2 billion of old debt was satisfied by cash, new first lien and second lien debt and equity. The refinancing also includes a new $130 million credit facility. Credit Suisse First Boston acted as financial advisor to K Road Power, arranged the recapitalization of $1.2 billion in debt and equity and underwrote the new $130 million credit facility.
Boston Generating, which is owned by a group of hedge funds, was originally developed by Sithe Energies. It was sold to Exelon, which sold the plants back to the developers in July 2003 after it failed to make a profit on its investment. Angelo Sabatelle, analyst at Moody's Investors Service, said K Road Power's ownership brings stability to the company. "[K Road Power] is familiar with its assets and will bring in managing skill sets. They also know the market well," said Sabatelle. William Kriegel, ceo of K Road Power, did not return calls.
Moody's assigned a B2 rating to the first lien debt. The second lien is unrated. The rating is close to a default rating, reflecting the volatility of its cash flows. "Even with the reduced debt in the capital structure, its lack of contracts means there is less predictability around its cash flows," said Sabatelle.