construction lenders with a 10-year term loan. (The amount of US Eximbank’s political risk
coverage was less than the amount of the construction loan because the latter includes capi-
talised interest during construction, which US Eximbank does not cover.) The IDB provided
an additional US$76.9 million in construction and term financing, covered for construction
risk during the construction period by a letter of credit by the commercial bank group. US
Eximbank’s board of directors approved the loan not as a pure project financing but as a
passthrough credit obligation of the CFE.
At the end of the construction period the construction lenders are taken out in two ways.
Their US$76 million standby letter of credit in favour of the IDB, covering construction risk,
expires, and US Eximbank takes them out of their construction loan with a 10-year term loan.
Alternative sources of finance considered
US Eximbank has restrictions on the amounts that it can lend based on the percentage of US
content, percentage of local content and interest capitalised during construction. The sponsors
originally had planned a Rule 144A bond offering through Salomon Brothers for the amount
of funding still required after the commercial banks and US Eximbank had made their com-
mitments. However, after the devaluation of the peso in December 1994 the bond market
became unavailable to Mexico. The sponsors approached the IDB, which was willing to lend
money but was not willing to incur construction risk. The market reopened a surprisingly
short six months later, when the Mexican government did a US$1 billion bond issue, but by
that time the IDB had already committed itself to filling the gap that the 144A tranche would
have filled.
Guarantees and other third-party sources of support
There is no explicit Mexican government guarantee. However, the CFE is viewed as an
implied sovereign credit risk. The CFE runs the electricity business for the entire country just
as Pemex runs the oil business.
Ownership structure
The project was an opportunity for GE Power Systems to sell turbines, for GE Capital to
make an attractive equity investment and support an affiliate’s large-ticket sale, for Bechtel
to provide design and engineering, for ICA Fluor Daniel to construct a power plant, and for
El Paso Energy to sell natural gas. All the sponsors considered this project to be an important
step in developing further business in Mexico and other Latin American countries.
The sponsor team
The project company, Compania Samalayuca II SA de CV, was formed in August 1994 with
four equity partners and co-developers, the Structured Finance Group of GE Capital Services
(GECC) owning 40 per cent, El Paso Energy International owning 30 per cent, InterGen own-
ing 20 per cent and Grupo ICA owning 10 per cent. GE Power Systems and GE Capital acted
together as the lead developer and project manager, and GE Power Systems was the equip-
ment supplier. The construction partners were GE Power Systems; Bechtel Power, an
SAMALAYUCA II, MEXICO