LS Power Development has quietly accumulated 20-30% of the $1.4 billion in project loans associated with MachGen generation fleet, after a bid for the physical assets was scuppered a few weeks ago. The private equity shop, with offices in Manhattan and East Brunswick, N.J., had placed a bid for the 3.7 GW portfolio that was strongly considered until several hedge funds acquired some $800 million in debt at prices representing a premium to LS Power's offer.
Industry players told Power Finance & Risk, an LMW sister, LS Power's move now is a backdoor strategy toward ultimately bagging the assets, but also note that the company, at this point, is happy pocketing the paper and collecting interest payments. "They want to own the asset, but if they can't they'll just hold onto the debt so that they can try and target the debt holders and make another bid," one energy official following the deal commented. Moreover, it can benefit if the value of the debt ticks up in the secondary market, market players said. LS Power's acquisition price could not be determined. Levels for the MachGen (formerly known as GenHoldings) paper is the in the 106-108 range, according to traders. Hedge fund investors bought the paper at around 97 1/2 less than a month ago.
Officials at LS Power in New York declined to comment and Roger Bredder, managing director at Société Générale, which leads the creditor group, did not return a call for comment. The Blackstone Group planned to sell the PG&E National Energy Group-developed plants more than a year ago but it is not clear if it is now involved in the sales process (PFR, 3/4).
The MachGen generation fleet consists of Athens (1,080 MW) in New York, Millennium (360 MW) in Massachusetts, Covert (1,170 MW) in Michigan and Harquahala (1,092 MW) in Arizona. William Kriegle's K-Road Ventures took a few stabs at purchasing the portfolio but deals did not materialize. K-Road succeeded in a bid to acquire the 3 GW Exelon Boston generating facilities (PFR, 5/13)--a deal brokered by the creditor group's auctioneer Lehman Brothers and WestLB, which represented K-Road.