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To meet the needs of its growing population, California's economy relies upon affordable and reliable supplies of electricity. The challenge for providers and state policy makers is to manage an energy sector that is facing increasing exposure to escalating energy prices, potential supply shortages and an ageing energy delivery infrastructure. As a result, sector projects with proven track records for consistent energy generation, strong risk profiles and existing ties with established distributers, remain key targets for investors, while being operationally and financial sound candidates for further capitalisation from institutional funders. One such project was Blythe Energy LLC (‘the Project’) – a 520 megawatt combined cycle power plant that uses both gas and steam turbines to generate electricity. Lloyds Bank Commercial Banking (“Lloyds Bank”) helped to fund the Project with $345 million in senior secured debt, providing Blythe the requisite working capital to ensure its long-term production capacity in line with its existing affiliate agreement, and allowing its sole equity sponsor to realise part of the value in its investment in the Project.
Located on a 76-acre site approximately six miles West of Blythe, California, near the Arizona border, the Project is a 520 megawatt combined cycle power plant that uses both gas and steam turbines to generate electricity. Blythe commenced commercial operations in 2003 and generates enough electricity to power approximately 500,000 homes. The Project sells its capacity and energy exclusively to Southern California Edison (SCE) under a Power Purchase Agreement (PPA) which expires in July 2020. SCE (Moody’s / S&P: A3 / BBB+) is a major investor-owned electric utility company in the U.S. which provides retail electric service to 4.5 million business and residential customers over a 50,000 square mile area in southern California. Blythe’s PPA with SCE was the cornerstone of the financing for the Project. The PPA is structured as a tolling agreement which requires SCE to pay for the Project’s fuel costs and bear fuel supply risk (excluding Blythe’s requirement to maintain fuel transportation in a quantity sufficient to transport the fuel required to generate the contract capacity). In addition, the PPA provides for capacity payments, a variable O&M charge and a start-up charge to Blythe. Capacity payments to Blythe under the PPA are intended to allow recovery of the Project’s capital costs and fixed expenses, while variable O&M and start-up revenues are intended to cover the Project’s non-fuel variable expenses associated with energy dispatch.
Established as FPL Energy in 1998, NextEra Energy Resources is the largest generator of wind and solar power in North America with 115 facilities in operations in 26 states and Canada and more than 18,850 megawatts of generating capacity in operation.
NextEra is a key client for Lloyds Bank which has resulted in numerous Mandated Lead Arranger roles in several of the company’s conventional and renewable energy projects, including Heartland I and II, Calhoun Power, Wild Prairie and, most recently, Blythe Energy.
Having pitched for the Blythe Project financing in July 2010, Lloyds Bank was mandated by NextEra in August 2010 and the deal reached financial close in December 2010. The bank acted as Co-Bookrunner alongside Credit Agricole and was the syndication agent in the form of a club transaction, jointly providing $311.5 million in senior debt facilities, comprising a term loan as well as a PPA letter of credit facility.The Project Finance North America (PFNA) team at Lloyds Bank was selected due to its strong relationship with the sponsor as well as its recognised commitment and appetite to deliver on complex deals in the North American energy market. The bank’s Sales & Derivative Structuring team in London worked alongside PFNA from project inception to cover all aspects of the hedging requirement and facilitated execution of a pro rata share of the interest rate swap shortly after Financial Close. Bob Botschka, Senior Vice President on Lloyds Bank PFNA team, said: “To secure this funding package in what remain uncertain economic conditions highlights the underlying credit fundamentals of Blythe, which is resilient to multiple downside risks taking into account its existing tolling agreement and its sponsor’s equity position.“This transaction demonstrates the strength of our Project Finance team in the US, and demonstrates our deep understanding of NextEra’s existing energy projects and long-term targets as one of the leading operator of wind power generation in the US.”
Amy Black, Assistant Treasurer of NextEra Energy, Inc., commented: “The Project Finance team at Lloyds Bank provided timely funding, while ensuring a financing structure that helps us realize our long-term business goals".
Robert V. BotschkaSenior Vice President, Project FinanceConventional Energy North AmericaLloyds Bank Commercial BankingTelephone: 001 212 930 5040Email: email@example.com