InterGen is looking at transferring three natural gas-fired plants back to the project finance lenders who funded construction, signaling it might be giving up on recovering value in the merchant assets. The IPP venture asked Lehman Brothers last fall to advise it on its options for its Redbud, Magnolia and Cottonwood facilities, according to bankers. It is unclear what prescription the bank offered or if Lehman is still advising it. Calls to Martin Rees, cfo, and spokeswoman Sarah Webster, were not returned. Bankers at Lehman declined to comment.
Observers say a transfer could be initiated some time in the second quarter, possibly leading to an auction of the assets. The joint venture between Royal Dutch/Shell Group and Bechtel Corp. injected some $250-300 million in letter of credit loans into the plants to ensure that interest payments on $1.5 billion of non-recourse construction debt could be made (PFR, 9/1). A chunk of that cash, about $50 million, has been eaten up, one banker notes, adding that InterGen wants to walk away because it no longer wants to plow any more money into the merchant facilities.
The plants have struggled since their inception because of the collapse of the merchant power market. Redbud (1,100 MW) is in Luther, Okla., Magnolia (900 MW) is in Benton County, Miss. and the crown jewel of the portfolio, Cottonwood Energy Project (1,236 MW), is located in Newton County, Texas. Citigroup, ABN Amro and Deutsche Bank are the respective leads on the debt associated with the facilities. Officials at the banks either declined to comment or did not return calls.
At present, Citi is advising Intergen on the sale of its global portfolio (see story, page 3), which did not include the trio of assets because the venture did not want to muddle the auction process by including merchant plants since the other facilities have PPAs in place.