Two Korean firms make $70 mn senior loans to power plants near Chicago

  • 2017-02-10

NH Investment & Securities Co. Ltd. and KEB Hana Bank have made $35 million senior loans each to two power generation facilities near Chicago, accelerating their push into US infrastructure assets in search of steady cash flows.

The lending is part of the $300 million senior debt which LS Power Associates, a US power plant developer, has sold to pay back bridge loans borrowed to acquire two power stations in Aurora and Rockford, Illinois, in 2016, according to NH Investment and other investment banking sources on Feb. 9.

The fresh loans have a maturity of seven years and are expected to deliver an annual return of 4.5 to 4.7% in interest incomes, after pricing in currency swap costs.

“Given that this lending was made to the power plants already constructed, it is a stable investment generating steady interest incomes,” said an NH Investment source.

Other lenders include ING Capital, GE Capital and Bank of Montreal.

Senior loan lenders to power generation facilities in Aurora and Rockford, IL:

Investor Investment amount
NH Investment & Securities $35 million
KEB Hana Bank $35 million
GE Capital $33 million
ING Capital $30 million
Bank of Montreal $25 million
Citibank $20 million
CoBank $20 million
BNP Paribas $15 million
Mitsubishi UFJ Financial Group $15 million

Source: NH Investment & Securities

LS Power acquired the two simple-cycle natural gas-fired facilities – Aurora Generating Station (878 MW) and Rockford I and II Energy Center (450 MW) – from NRG Energy Inc. last year

NH Investment has sold down the foreign exchange loans to a special purpose company (SPC), which floated securities based on the loans. The brokerage house absorbed the foreign exchange risks by signing a currency swap contract with the SPC, according to MoneyToday, a South Korean news outlet.

The expected return of 4.5 to 4.7% from the senior loans is higher than the 3%-level return of senior debt to South Korean social overhead capital (SOC) projects, the media added.

But it is below the projected 5.5% return from the $250 million, seven-year senior loans which NH Investment had arranged for Newark Energy Center in New Jersey in 2016.

With aged US power facilities in the northeastern states set to be replaced mostly by new gas capacity over the next few years, private lending to power plants is emerging as a safe-haven alternative investment. Tightened regulations on banks’ lending and higher interest rates have also encouraged Korean institutional investors to boost lending to overseas infrastructure assets, amid caution about soared property value.

“It is meaningful in that a domestic securities company participated in the group of lenders for overseas SOC, which has high entry barriers,” said another NH Investment source.

Last month, NH Investment invested a combined $200 million in a natural gas-fired power generating facility under construction in Dover, New York, together with its parent group and an affiliate insurance company.

By JiHoon Lee and Donghun Lee

lizi@hankyung.com

<Edited by Yeonhee Kim>