At least five of the seven banks behind the CGE Power venture, which until recently was looking to build a new independent U.K. generating company, have within the past few weeks sold down their debt in Teesside Power. Abbey National, HypoVereinsbank, Bayerische Landesbank, HBOS and WestLB have sold in excess of GBP115 million ($210 million) of Teesside’s project loan paper, leaving only Royal Bank of Scotland and Lloyds TSB of CGE’s sponsors still in the debt syndicate, calculated one trader. The bulk of Teesside's GBP655 million non-recourse debt is now held by investment banks and hedge funds. Officials at Abbey, BL and Lloyds declined comment. Calls to the other firms were not returned.
The flurry of selling activity is surprising, given that Teesside paper is still trading well below face value and the CGE banks will have had to take significant haircuts on their original investments. “I can understand banks selling Drax and Damhead which have recovered close to par, but Teesside is still struggling,” said one official.
Late last week Teesside Power loan due 2008 had indicative pricing of 77/79. It was trading in the 40s early last year. Bankers’ willingness to divest positions in Teesside may reflect a desire to extricate themselves from a complicated credit that offers uncertain returns. The 1.8 GW gas-fired power station in northeast England has claims against former owner Enron and offtaker British Energy, and is also likely to be foreclosed on by its creditors within the next few months.