Approximately $135 million of TECO-Panda's debt has switched hands in the past two weeks as banks involved in the initial underwriting have been selling down exposure ahead of a possible restructuring of the loans. As first reported last week on LMW's Web site, a $25 million piece of TECO's term loan with letters of credit traded around the 55 level, a $60 million piece without the letters of credit changed hands at 60, a trader said. Last Wednesday, a $50 million piece changed hands with letters of credit at 65.
More paper was expected to come out last Friday as LMW went to press, one trader noted. He added that the bid offer spread tightened as the week went on and future trades were expected to be struck at 60-61.
Arab Banking Corp., Bank of Tokyo Mitsubishi, CIBC World Markets, HypoVereinsbank (HVB), Citigroup, Toronto Dominion, West LB,Calyon, Bank of Montreal, and Bank of New York were said to be among the potential sellers, according to traders following the situation. The exact sellers could not be determined and officials at those firms either declined comment or did not return calls. Bankers ruled out HVB and West LB as the sellers.
The trader explained that the banks are trying to protect themselves from a possible restructuring of the loans. But several distressed funds are interested because of the steep discount and expected future improvements in the power plant's performance. "The funds are betting the project finance market will turn around, while the banks have deal fatigue and are looking to get out and on to new deals," the trader noted. TECO's bank debt is selling at a 40-point discount. "There are few assets with this type of price concession," he said.
The TECO-Panda paper is a part of larger bank financing that was put in place during the summer of 2001 to support the construction and operation of the Union and Gila River power stations. The effort was a joint venture between TECO Wholesale Generation, known at the time as TECO Power Services Corp., and Panda Energy International.
The original financing included $1.675 billion of non-recourse debt and $500 million in equity bridge loans. The bridge loans have been paid down. TECO bought out Panda's interest in the joint-venture in 2003 and TECO handed over the plants to the lenders earlier this year. The bank debt holders still need to pass a series of amendments, which will enable them to take over the plants. Officials at TECO did not return calls.