Starwood Energy to raise $200 mn from Korea to fund $760 mn US deal: report

  • 2016-10-07

(Updated to clarify the fund-raising is still underway, based on a comment from a source with knowledge on the matter)

KB Asset Management, a unit of a top South Korean banking group, will raise $200 million in a fund from domestic savings funds and insurance companies to buy senior debt issued by Starwood Energy Group, a U.S. private equity firm, to finance its $760 million acquisition of power plants in Pennsylvania.

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Of the acquisition cost, Starwood Energy will raise about $520 million through senior debt with an 8-year maturity, offering an annual return of 4~5%, according to the Maeil Business Newspaper, citing investment banking sources on Oct. 6. The deal is expected to close in the fourth quarter of this year, Starwood said in a press release in July.

An industry source with knowledge on the matter told the Korea Economic Daily that KB Investment is tapping institutional investors for the fund-raising, and the exact amount of commitments from those investors have not been determined yet.

“Unlike South Korea where coal-fired power is the base energy source, gas-fired power generation is the main one in the U.S. Given that, domestic institutions participating in this investment are expected to achieve stable returns for the years to come,” the daily quoted an unnamed IB source as saying.

An investment affiliate of Starwood Energy Group, specializing in energy infrastructure investments, has agreed to buy power generating assets, located primarily in Marcus Hook, Pa., from a U.S. wholesale power generating firm. The transaction includes the 790-megawatt (MW) combined-cycle Marcus Hook Energy Center and the 50-MW simple-cycle Marcus Hook 50 Energy Center. Both of these facilities are natural gas-fired power plants, according to the press release.

The latest investment by South Korea investors in U.S. senior loans underscores soaring demand for overseas private debt products including collateralized loan obligation and mezzanine debt, as well as properties and infrastructure, shifting away from lackluster domestic financial markets.

In the first half of 2016, KB Asset Management launched a 200 billion won ($180 million) fund with commitments from domestic insurers and savings funds to invest in major power plants, roads, medical centers and school facilities in Canada and the United States, the newspaper added.

<Edited by Yeonhee Kim>