Directory of Innovative Financing: UK

Northern Ireland, UK

Project Title: Kilroot Electric Bond Issue

Country: Northern Ireland, UK

Project Cost: $320 million (L200 million)

Sector: Power generation

Status: UK sterling bonds sold in London, July, 1994

Sponsor/Lead Manager: NIGEN, Ltd. (a 50/50 joint venture of AES of the US and Tractabel of Belgium formed in 1992), with Salomon Brothers and Barclays de Zoete Wedd of London as underwriters.

Customer: Northern Ireland Electricity, plc, under a 30-year power purchase agreement.

Financing Package: An unrated 17-year, 9.5% (LIBOR plus 220 bp) bond that completely replaces the original syndicated 14-year non-recourse bank debt BZW and NatWest arranged for the project with Barclays as lead lender in 1992 at LIBOR plus 140-160 bp.

Innovation: This was the first limited recourse refinancing of an independent power project in the public bond markets in Europe, and was devised and developed in-house by NIGEN employees. By using these markets, the sponsors were able to extend the maturities of their financing beyond the date originally available in the commercial bank market, albeit at a higher pricing that is compensated for by higher tax deductions under ballon payments of principal.

NIGEN will repay interest only on the bond until 1999, then an undisclosed amount from 1999 to 2004, and 20% of principal annually from 2006 to 2010. Under the terms of the loan, the company was paying interest and principal in the early years. The new structure thus frees up more early returns on investment to the equity investors than had been possible under the bank loan's straight quarterly repayment schedule, giving them more capital to reinvest in other projects.

The new financing structure also transfers all the debt burden to the NIGEN's largest asset, the Kilroot power plant, leaving the holding company debt-free should it choose to expand. It also relieves both Kilroot and its sister plant Belfast West from the constraints of the bank loans' covenant package. The bond is considered the first of its kind in Europe in that it was for a single-project company, was based on cash flow, and was limited recourse in nature.

Infrastructure and Financial Markets Division
Private Enterprise and Financial Markets Subdepartment
Sustainable Development Department
Inter-American Development Bank

Last updated: 02/26/07