Structure of financing
Financing for the project was provided in 1997 by a US$165 million Rule 144A/Regulation
S debt issue lead-managed by Bear Stearns and co-managed by certain institutions, including
Dresdner Kleinwort Benson North America LLC (now Dresdner Kleinwort Wasserstein), the
US-based securities affiliate of Dresdner Bank AG. The final maturity of the notes is 2014,
nearly 18 years from issuance. Average life is 12 years. The notes have a 12-year non-call
with a declining call premium thereafter.
It is common for a power project to be financed with bank loans through the construc-
tion period and then be taken out with a bond financing. The TermoEmcali project financing
was relatively aggressive with a bond financing ‘out of the box’.
Alternate standby facility
To ensure long-term financing for the project, Dresdner Kleinwort Benson committed itself
to underwriting a US$156 million alternate standby facility, to be used if the 144A note issue
was unsuccessful or delayed because of poor market conditions. Although a bank term loan
in place of the 144A note issue was conceivable, the terms and conditions for such a loan
would have been more restrictive, so there was an incentive to refinance the facility as soon
as possible.
Project contract letter of credit facility
The fuel performance letter of credit supports certain payment obligations under the gas sup-
ply agreement and the fuel transportation performance letter of credit supports certain pay-
ment obligations under the gas transportation agreement. Both are in an amount of US$5.5
million, issued on the financial closing date and expiring in five years. Ecopetrol required that
the fuel performance and fuel supply letters of credit be issued by a Colombian bank. A back-
to-back letter of credit was created in which the lending-syndicate banks issued a letter of
credit in favour of Citibank in Colombia, which in turn issued a letter of credit in favour of
Ecopetrol, priced at the applicable margin.
The US$8.5 million PPA construction-period letter of credit, issued on the financial clos-
ing date, was converted to a US$10 million PPA operating-period letter of credit when com-
mercial operations began.
The project-contract letters of credit support some of the project’s payment and perfor-
mance obligations under the PPA. Drawings under the project-contract letters of credit mature
no later than seven years from financial closing. The facility is expected to be renewed and
extended annually on an ‘evergreen’ basis for additional one-year periods.
Working capital facility
A US$12 million working capital facility was established to support the project’s working
capital needs on the earlier of either the commercial operation date or the date that the pro-
ject was obliged to make its first payment to purchase gas. Each working capital loan has a
180-day maturity, but is required to be repaid only up to the limit beyond which deposits with
the Colombian central bank are required (as explained below). The remainder is deposited as
cash collateral for the loans.
TERMOEMCALI, COLOMBIA