Distressed asset funds, or vulture funds to their enemies, will have a significant role in the restructuring of the overleveraged US electricity industry. Indeed, they have been factored into a number of scenarios by which banks forced into taking the keys to power stations can get out of the power sector. But there are signs that some of the more aggressive players are looking at taking debt positions in troubled generating facilities, and potentially dashing hopes of a tidy restructuring.
The background is one now familiar to lenders - sponsors without access to capital markets and with near-worthless credit ratings have been unable to inject promised equity into large construction ventures. The two most high-profile examples are NRG Energy and PG&E's National Energy Group (NEG). NRG is in talks with banks regarding a series of defaults on debt and equity obligations, including $1 billion to round out a construction revolving credit facility led by Credit Suisse First Boston.
The NEG has already given some indication of the direction it plans to take by essentially asking its lenders to make good its equity contributions to the four plants in the GenHoldings I facility. It is understood that the Citigroup- and SG-led syndicate now finds itself in the plant construction and operation business. The NEG has also defaulted on $431 million due under a corporate revolving credit.
The two are close to Chapter 11 proceedings for different reasons - the NEG because while relatively creditworthy was forced to use ratings triggers to make itself financeable in...
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