Panda-Power-Funds-backed power plants to refinance debt: CapitalStructure

  • Two natural-gas fired power plants hire Jefferies to explore options
  • Weakness in ERCOT wholesale power market
  • Lenders include Ares, GSO, H.I.G. Whitehorse

By Jamie Mason, CapitalStructure

A pair of natural-gas-fueled power plants backed by private equity firm Panda Power Funds are seeking to refinance their debt together, said two sources with direct knowledge of the matter.

The utilities, Panda Temple Power LLC and Panda Temple Power II LLC, have retained Jefferies LLC as their financial adviser and are exploring all options, the sources said.

Based in Temple, Texas, Panda Temple I and Panda Temple II each operates a 758-megawatt combined-cycle facility that provides power to roughly 750,000 homes.

Panda Temple I breached its fixed-charge coverage ratio as of Dec. 31. It had entered a forbearance agreement, which expired on Feb. 5, one source said.

The source said the power plant has been struggling because of tightened spark spreads in the Electric Reliability Council of Texas wholesale power market. ERCOT manages the flow of electric power on the Texas interconnection that supplies power to customers in Texas.

A spark spread is the difference between the price received by a natural-gas-fired electric generator for electricity produced and the cost of the natural gas needed to produce that electricity.

Utilities in ERCOT have been struggling lately. For instance, Exelon Corp subsidiary ExGen Texas Power LLC, which owns five electric-generating assets in Texas, has reportedly hired PJT Partners Inc to help address its debt and liquidity issues. ExGen Texas Power declined to comment and calls to PJT Partners were not returned.

Panda Temple I owes roughly $373 million on a $380 million term loan due March 6, 2022, and Panda Temple II owes roughly $368 million on its $372 million term loan due April 3, 2019.

Panda Temple I also has a $10 million project letter of credit bank loan, a $16.6 million debt service reserve letter of credit bank loan and a $5 million revolver, according to S&P. All the debt comes due March 6, 2020.

The lenders to Panda Temple I include Ares Management LP, Brigade Capital Management LP, GSO Capital Partners LP, Canaras Capital Management, Lord Abbett & Co. and Western Asset Management Co, sources said.

Lenders to Panda Temple II include Ares, Brigade Capital, Crescent Capital Group LP, GSO, Guggenheim Partners, Western Asset Management and H.I.G Whitehorse Capital LLC, sources said.

In May, S&P downgraded Panda Temple I to B- from B, with a negative outlook because of continued weak performance. The credit-rating firm said market conditions in ERCOT continue weak, and power prices and spark spreads have collapsed over the past 18 months because of weaker-than-expected growth in demand, low gas prices and significant renewable-energy production.

Panda Temple II was also downgraded by S&P in April to B- with a negative outlook. The report said prolonged market weakness could result in liquidity strains or an unsustainable capital structure. S&P said volatility in the market would continue until at least the end of 2017.

Founded in 2010, Panda Power Funds is a Dallas private equity firm focused on natural-gas-fueled power-generating facilities. Latham & Watkins is the utilities’ legal adviser, sources said.

The lenders are being advised by Houlihan Lokey and Stroock & Stroock & Lavan LLP, sources said.

Jefferies, Houlihan Lokey and Latham & Watkins declined to comment. Stroock & Stroock & Lavan could not be reached for comment. A Panda Power Funds spokesman did not return calls for comment.

Note: This story was first published by CapitalStructure, a sister publication to Buyouts. For more information about CapitalStructure, contact Shasha Dai at

The sun sets behind power lines above the plains north of Amarillo, Texas, on March 14, 2017. Photo courtesy Reuters/Lucas Jackson