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Gas Natural Finds Bargain In Enron Rubble
By Jonathan Berke
August 4, 2003
Spain's Gas Natural wins approval to buy a 47.5% stake in utility EcoElectrica de Puerto Rico, a former unit of bankrupt Enron.
Two years ago, Eco-Electrica de Puerto Rico was nearly sold for $1.19 billion. But last week, Spain's Gas Natural SDG SA won clearance to buy a 47.5% stake in the Puerto Rican utility for only $177 million.
The stake in EcoElectrica was the property of Enron Corp. and thus the subject of a bankruptcy-supervised auction that took place on Tuesday, July 29. On Thursday Judge Arthur Gonzalez of the U.S. Bankruptcy Court for the Southern District of New York in Manhattan gave Gas Natural, the winner of the auction, permission to acquire the asset.
The Spanish utility originally had a stalking-horse agreement in place to acquire EcoElectrica for a mere $130 million but proved willing to pay more to beat out the competition. Had Gas Natural been outbid, it would have received an $8 million termination fee under the terms of the agreement.
Gas Natural's winning bid still valued the Puerto Rican utility far below the price that previous suitor Mirant Corp. -- itself now bankrupt -- settled on two years ago with EcoElectrica's majority owner, Edison Mission Energy (a unit of the Rosemead, Calif.-based Edison International).
Mirant had a deal in place to acquire all of EcoElectrica for $1.19 billion -- $586 million in cash and the assumption of $600 million in debt -- in July 2001. But the sale fell apart amid the market turmoil generated by Enron's accelerating collapse. Mirant's bonds were downgraded to junk status, and the Atlanta-based utility had to restructure its debt.
As part of the restructuring, Mirant pulled out of its EcoElectrica deal in January 2002, citing a clause in the contract that called for the deal to close by Dec. 31, 2002. Edison then promptly sued Mirant.
Mirant is now in the early stages of its own bankruptcy, having filed on July 14. As for Enron, this sale continues the purge of its nonstrategic assets as it continues to shape up its reorganization plan.
Terms of the deal call for Gas Natural to acquire a 47.5% stake in EcoElectrica's gas-powered generation plant and regasification plant; a subordinated promissory note in EcoElectrica with a principal of $12 million plus accumulated interest of $7.6 million; and some related services and management agreements.
Analysts covering Gas Natural reacted favorably to the purchase, saying that it will help the company's continued expansion in Central and South American markets. Gas Natural owns gas distribution assets in Argentina, Colombia, Brazil and Mexico.
EcoElectrica's power generation plant generates 20% of Puerto Rico's energy production.
"The asset opens up another market for [Gas Natural]," said one industry analyst, adding that there is "stable demand for the power plant and growth potential on the island as well."
Should Gas Natural fail to complete its bid, an entity known as BG Puerto Rico Corp. is listed as the backup bidder, with a $175 million offer. BG Puerto Rico would also have to pay the additional $8 million owed Gas Natural under the stalking-horse agreement.