GIP debt fund in $125m US power deal

Global Infrastructure Partners Capital Solutions Fund is buying the majority of a $135m senior secured term loan for a 453MW power plant portfolio owned by Heorot Power.

Global Infrastructure Partners Capital Solutions Fund, the debt vehicle of Global Infrastructure Partners , has clinched its second power investment, PDI sister title Infrastructure Investor has reported.

The debt fund is buying $125 million of a $135 million five-year senior secured term loan to a 453MW portfolio of power plants owned by Heorot Power. The loan, in conjunction with equity from Beowulf Energy and GSO Capital Partners, Heorot Power's sponsors, was used to refinance existing debt and fund the acquisition of Bicent (California) Power, a 134MW gas-fired facility. The rest of the 453MW portfolio includes three gas-fired units in Colorado generating 237MW and an 82MW dual-fuel plant in Massachusetts.

The term loan also comes with a first lien security interest in all of the assets, with the exception of Bicent, as well a pledge of material contracts.

GIP described Heorot Power as a diversified portfolio of operating power generation assets with long-term contracted cashflows. The latter come from power purchase agreements signed with “high quality offtakers and locked-in capacity payments”. In addition to being GIP CAPS' second power investment, the deal marks the debt fund's fourth transaction.

GIP CAPS reached a final close earlier this year on an undisclosed amount. Infrastructure Investor Research & Analytics says the fund has raised $1.03 billion while an SEC filing from last November showed the fund had raised around $700 million then. Known investors include the Oregon State Treasury public pension fund, which committed $200 million to GIP CAPS, according to  Infrastructure Investor Research & Analytics .

Placement agent documents indicate the vehicle is aiming for a net IRR of between 9 percent and 11 percent. 

GIP CAPS co-managing partner Reiner Boehning told Private Debt Investor in an interview that in the years following the financial crisis, many of the European banks that had been most active in project finance retreated have since been replaced largely by Asian banks. He said that while the project finance market for investment-grade projects is very deep, other lower-rated projects often have a hard time finding financing in the current environment.

The GIP CAPS fund is designed in part to finance these projects, essentially acting as a special situations fund for infrastructure assets, according to Boehning. He told PDI that the fund closed on an undisclosed amount in June and will offer subordinated, mezzanine and senior secured loans of between $50 million and $250 million to infrastructure projects, initially focusing on opportunities inside of the Organisation for Economic Co-operation and Development (OECD).

“Typically, these are bilateral transactions where we provide most, if not all, of the required capital, so we take the syndication uncertainty out of the deal,” he said. “We are all project finance people by background, so we might get comfortable with certain risk aspects where the public markets just aren't comfortable,” Boehning added.

Boehning said that the CAPS fund will target returns in the low to mid-teens and will also have the ability to pursue larger investments in other regions in direct collaboration with its LPs and other elements of the GIP platform when those opportunities arise.

In a statement, GIP said its credit arm can make “non-equity” investments across the capital stack. The vehicle is targeting energy, transport, water and waste and other assets with “infrastructure-like characteristics”. It can do greenfields, brownfields, acquisition finance, restructurings and secondary purchases, among others.

GIP is currently finishing fundraising for its third unlisted infrastructure fund, targeting $12 billion with a hard-cap of $15 billion. Sources have told Infrastructure Investor GIP is currently in discussions to raise that hard-cap.

Chris Janiec contributed to this report