FPL Energy's long-awaited $2-2.5 billion construction revolver is in flux because co-lead arranger Citibank has reportedly declined to fully underwrite the credit. Fellow co-lead Bank of Nova Scotia is still working with the Juno, Fla.-based independent power producer, says a Scotia banker, declining further comment. A Citi official declined all comment and calls to FPL were not returned by press time, but project finance bankers say Citi is now effectively off the deal, according to Power Finance & Risk, an LMW sister publication.
FPL's insistence that the deal be fully underwritten may reflect the fact it agreed financing terms with its banks last year when market conditions were much more favorable. The large size of the non-recourse facility, which would finance the construction of four projects and the fact that most of the projects involve merchant risk, means getting it fully-underwritten in today's weak market is going to prove far tougher, bankers say. "It's a merchant plant financing in a market that doesn't want to do merchant," says one veteran project financier. "There is a reason [Citi] walked. [FPL] wants non-market terms," adds another banker, referring to the underwriting issue.
As things stand the deal may not hit the market any time soon. "It's in limbo," says one syndicator involved in the discussions. Market officials say Royal Bank of Scotland is now being mentioned as a possible co-lead. RBoS could supply underwriting capacity via its strong balance sheet, but it wouldn't be able to deploy the same level of marketing firepower that a shop the size of Citi can exercise during syndication, says one banker. Calls to RBoS were not returned by press time.
It's possible Citi may still come back to the deal if the structure is changed, but if not, one banker says adding different leads would not deter him from looking at the deal, but the absence of Citi "would not be a recommendation."