Calpine Lands $503M to Finish Two Power Plants

"This marks the first time that Calpine's strategy of managing every aspect of a power plant, from development and construction to operations and maintenance, has been financed in the broader commercial bank market," says Brian Harenza, vice president of finance at Calpine. Calpine will sell the entire amount of the output of the Mankato project to Northern States Power under a 20-year power sales agreement. Mankato is expected to begin commercial operations in June 2006.

Calpine's construction management company is the general contractor and manages all aspects of the project including design, engineering, and equipment procurement through completion. Calpine says the construction approach offers flexibility in scheduling and managing work to enhance safety and quality, as well as improve plant efficiency and reliability. Calpine's operating services company will operate and maintain the facility.

The project financing will be structured as a construction loan, converting to a term loan upon commercial operations of the plants, and will mature in December 2011. The facility will initially be priced at LIBOR plus 1.75%, or currently 4.5%.

A group of five banks underwrote the project finance facility. Calyon served as lead arranger, underwriter, co-book runner, and administrative agent; CoBank as lead arranger, underwriter, co-book runner, and co-syndication agent; HVB Group as lead arranger, underwriter, and co-syndication agent; HSH Nordbank as lead arranger, underwriter, and co-documentation agent; and UFJ Bank Limited, as lead arranger, underwriter, and co-documentation agent.

Upon closing, Calpine received $97 million for construction costs spent to date on the two projects. The remaining amount available under the project finance facility will be used to fund the completion of the projects. As part of the closing, Calpine funded a $25-million letter of credit for each project as credit support for construction activities.

From its Freeport project, Calpine will sell steam and approximately 200 megawatts of power to Dow Chemical Co. under a 25-year power and steam sales agreement. Calpine Corp. is the largest US owner of natural-gas-fired power plants.