The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Banks are bidding to provide the Bahamas Electricity Corporation (BEC) and its proposed private sector manager with $75 million in short-term working capital that will allow them to move immediately on restructuring plans.

Tribune Business contacts intimately familiar with the BEC process and its financing needs confirmed that five-six banks are bidding to provide the Corporation, and PowerSecure International, with what is effectively a ‘bridging’ facility.

The $75 million is designed to ‘fill the gap’ between the PowerSecure management takeover and proposed longer-term financing in the shape of the much-touted ‘rate reduction bond’ that will be used to refinance BEC’s legacy obligations and provide the new operator with working capital.

The banks, which are bidding as part of an official Government tender, are the same ones who have submitted bids to place the ‘rate reduction bond’ in the international capital markets.

The $75 million short-term facility will eventually be replaced, and paid out, by the ‘rate reduction bond’, with the Government currently eyeing October as the month in which PowerSecure will take over.

“There’s a need for short-term, interim financing that will come out with the rate reduction bond,” a source familiar with the process, speaking on condition of anonymity, told Tribune Business of the $75 million.

“It’s a short-term facility, This is just a bridge-type arrangement to fill the time gap until the larger bond issue. It’s required in the short-term to make some of the plans happen.

“It’s part of a much larger plan around the whole restructuring, the establishment of the new company, Bahamas Power & Light. This is just putting in place some initial funding and we’ll go from there.”

The source explained that the $75 million would provide PowerSecure with immediate operating and working capital to ‘hit the ground running’ on some of the immediate projects essential to kickstarting BEC’s restructuring.

“There’s a number of proposals relating to that facility,” they added. “There’s different approaches from different banks. They’re the same banks that were bidding on the rate reduction bonds.

“There’s been a very positive response on the funding side, which hopefully confirms the approach the Government’s taken to a large extent. Everyone’s on the same page with the restructuring.”

Tribune Business understands that five to six banks have bid on the contract to place the rate reduction bond, which will refinance BEC’s legacy debt and other liabilities.

These include around $300-$350 million worth of bank debt and bonds (largely held by Scotiabank), plus BEC’s unfunded pension deficit and various environmental liabilities and other obligations.

The Government has previously suggested that the rate reduction bond would need to raise around $450 million to completely refinance BEC’s legacy obligations.

However, other observers familiar with the situation have suggested the true sum could end up being anywhere between $750 million to $1 billion, especially if a new power plant for New Providence must be constructed.

The restructuring will follow a similar model to that employed at Lynden Pindling International Airport (LPIA), where the Government retained ownership via the Airport Authority but transferred all assets to the management company, the Nassau Airport Development Company (NAD).

In BEC’s case, the Government will also retain 100 per cent of the equity while transferring all operational assets to the new company, Bahamas Power & Light.

PowerSecure, like Vantage Airport Group, will be compensated via a management contract that is performance-based, with remuneration linked to hitting energy cost-reduction and reliability targets.

Tribune Business understands that a 280-page draft contract is being kicked back and forth between PowerSecure and its advisers on one hand, and the Government and its team on the other, as they negotiate “the devil in the details”.

The Carolinas-based firm was yesterday said to have “a large team on the ground” in the Bahamas following the recent signing of its $900,000 Transition Services Agreement with the Government, as it seeks to finalise the business plan for BEC.

This newspaper was yesterday told that the expectation is for PowerSecure to finalise the business plan, and for the Christie Cabinet to approve it, by September.

“They’re anticipating that ideally in October the new company [Bahamas Power & Light] will come into existence, and PowerSecure will take over,” a source familiar with the process told Tribune Business yesterday.