Dynegy/Energy Capital joint venture plans $1.85 billion secured debt

By Sara Rosenberg

New York, Feb. 25 – A joint venture being formed by Dynegy Inc. and Energy Capital Partners is expected to get a $1.85 billion secured debt facility to help fund the acquisition of ENGIE’s U.S. fossil portfolio, company officials said in a conference call on Thursday.

The secured debt will be provided by a consortium of Dynegy’s relationship banks.

The debt is structured as a $1.85 billion secured term loan but a portion of that can be moved into bonds, officials said in the call, explaining that this option provides flexibility to refinance the debt if needed.

Indicative pricing on the term loan is Libor plus 525 basis points with the ability to flex up by about another 275 bps, and indicative original issue discount is 98 but that can be flexed as well, officials continued in the call.

Other funds for the acquisition will come from a $400 million junior bridge facility provided by Energy Capital and $1,185,000,000 in equity from Dynegy and Energy Capital, including transaction fees and initial cash balance.

The bridge facility is priced at 11% with a payment-in-kind option for quarterly interest payments. If not refinanced prior to 12 months after closing, the note may be repaid, on a pro rata basis, by the members, converted into equity of the joint venture, or remain outstanding through the fourth anniversary of closing at a higher rate of interest.

To supplement the joint venture’s liquidity, Dynegy will provide a subordinated $100 million line of credit, which will be available for letters of credit or cash borrowings.

ENGIE’s U.S. fossil portfolio consists of 8,731 megawatts of generation capacity located in ERCOT, PJM, and ISO-New England.

The purchase price for the portfolio is $3.3 billion.

Pro forma joint venture debt to EBITDA will be around 5 times, but the plan is to bring that down to below 4 times by 2018.

Closing is expected in the fourth quarter, subject to customary conditions, including approval from the Federal Energy Regulatory Commission, Public Utility Commission of Texas, and expiration of Hart-Scott-Rodino waiting periods.

At closing, Dynegy will invest about $770 million and Energy Capital will invest about $415 million in the joint venture. Dynegy will own 65% of the joint venture, and Energy Capital will own 35%.

Dynegy’s investment will be funded by $150 million in proceeds from the sale of common stock to Energy Capital, $200 million from the forward sale of PJM capacity, and $420 million from general corporate liquidity.

The revolving credit facility at the parent company will be increased in connection with the joint venture transaction, officials added in the call.

Dynegy is a Houston-based energy company.

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