Dynegy To Enter ERCOT Market Via JV Acquisition of Power Plants From Parent of Retail Supplier
February 24, 2016 Email This Story Copyright 2010-16 EnergyChoiceMatters.com
Reporting by Karen Abbott • firstname.lastname@example.org
Dynegy Inc. and Energy Capital Partners, through a newly formed joint venture, have signed a definitive agreement to acquire the United States fossil portfolio of Engie (f/k/a GDF Suez), consisting of 8,731 megawatts of generation capacity located in ERCOT, PJM, and ISO-New England.
The joint venture has secured financing for the $3.3 billion acquisition ($378/kW), as well as related transaction fees and working capital, with $2.25 billion in committed debt facilities and $1.185 billion in equity commitments from its owners, which includes transaction fees and initial cash balance.
Of the 8,731 MW being acquired, more than 90 percent consists of natural gas-fueled plants (8,044 MW). The joint venture, "further diversifies Dynegy’s geographic footprint and creates a combined 35,000 MW portfolio with 43 percent of its capacity located in PJM, 15 percent in ISO New England, 13 percent in ERCOT, 18 percent in MISO, three percent in the New York ISO, and eight percent in CAISO," Dynegy said
"This transaction is a compelling value for our shareholders as it is the right assets, in the right markets, at the right price and unlocks considerable synergy value by utilizing our proven integration model and corporate platform," said Robert C. Flexon, President and CEO of Dynegy. "We partnered on this transaction with Energy Capital in order to minimize Dynegy’s equity issuance and manage balance sheet risk as access to credit markets remain exceedingly tight and in some instances unavailable."
Dynegy said that the Engie United States fossil portfolio complements Dynegy’s existing assets in PJM and ISO New England, and provides an opportunity to establish a presence in the Texas ERCOT market with the right assets at an attractive value.
The joint venture, named Atlas Power, is indirectly owned 65 percent by Dynegy and 35 percent by Energy Capital. The company will have a five member board which will consist of three representatives from Dynegy and two representatives from Energy Capital, and Dynegy will be responsible for the day-to-day management of the portfolio. As part of the joint venture agreement, Dynegy will have the right to purchase Energy Capital’s interest in Atlas Power at any time, while Energy Capital will have the ability, four years after closing, to unwind the joint venture either through a sale of its interest to Dynegy or a sale of the entire entity.
At closing, Dynegy and Energy Capital will invest approximately $770 million and $415 million, respectively in the joint venture. Dynegy’s investment will be funded by $150 million in proceeds from the sale of common stock to Energy Capital (valuation of $10.94/share), $200 million from the forward sale of PJM capacity, and $420 million from general corporate liquidity. In addition to the partner’s equity contributions, the joint venture has secured $1.85 billion in secured debt financing from a consortium of relationship banks and a $400 million junior bridge facility from Energy Capital. Dynegy and Energy Capital expect to replace these facilities with permanent financing.
The bridge facility provided by Energy Capital has no upfront fees, no prepayment penalties, and is priced at 11% with a payment-in-kind option for quarterly interest payments. If not refinanced prior to twelve months after transaction closing, the note may be 1) repaid, on a pro rata basis, by the members, 2) converted in to equity of the joint venture, or 3) 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.
Dynegy expects the transaction to close in the fourth quarter 2016 after meeting customary closing conditions including approval from the Federal Energy Regulatory Commission, Public Utility Commission of Texas, and expiration of Hart-Scott-Rodino waiting periods.