Highstar in $300m midstream JV(2)

Highstar Capital has agreed to invest up to $300 million in midstream energy company Caiman Energy alongside two of Caiman’s existing limited partners.

The investment comes from Highstar’s fourth fund, which is targeting $3.5 billion and held a first close on $750 million last fall. The fund will target a net IRR return profile of 18 percent to 25 percent, according to a memorandum issued by the Oregon Investment Council. Oregon is considering committing $100 million to the fund.

Morgan Stanley acted as exclusive financial advisor to Highstar Capital.

Caiman closed on a $200 million credit facility led by Bank of America and Wells Fargo in March, prior to which it received a $380 million commitment from EnCap Flatrock Midstream. The commitments, combined with Caiman’s expected cash flow through 2012, make more than $1 billion available to Caiman for investment in midstream infrastructure in the Marcellus shale.

Numerous private equity firms have been cashing in on the enormous potential of natural gas deposits under shale rock formations – one recent example being Kohlberg Kravis Roberts’ exit in June of Hilcorp Resources, which held acreage in South Texas’s Eagle Ford Shale natural gas deposits. The firm had spent $300 million in June 2010 for a 40 percent stake in the Texas-based company; that was quickly turned into $1.13 billion when Marathon Oil purchased the company for $3.5 billion.

In April, Highstar made its first investment from its fourth fund, agreeing to acquire two natural gas power plants in Arizona from electricity and generation transmission company LS Power.

The firm has made previous investments in power producers InterGen and Northern Star Generation, as well as investments in the US ports sector. Highstar has invested $5.5 billion in infrastructure assets to date, according to its website.