February 6, 2014
Illinois

Debt woes could put big Illinois wind farm in turbine maker’s lap

By Steve Daniels | Crain's Chicago Business | February 06, 2014 | www.chicagobusiness.com

Makers of wind turbines that increasingly dot the landscape in the Midwest aren’t usually in the business of owning the wind farms their equipment powers.

But the Chicago-based North American unit of Indian turbine manufacturer Suzlon Group could well be on course to taking over one of Illinois’ largest wind farms: the Big Sky project, located a little over 100 miles west of Chicago.

Operating since 2011, the wind farm – at 240 megawatts, it’s large enough to power more than 100,000 homes at full capacity – is owned by Midwest Generation LLC, now in bankruptcy. Big Sky, along with the other assets of MidwestGen, including four coal-fired power stations, is slated to be sold to Princeton, N.J.-based NRG Energy Inc.

At issue is an unusual loan Suzlon made to MidwestGen to finance the project that comes due in October. With a $228 million balance, the loan won’t be paid in full at that time. Suzlon has been in discussions with MidwestGen for months on restructuring the debt, according to Securities and Exchange Commission filings, but there’s been no resolution.

Making matters more complicated is the pending sale to NRG, which has emphasized in presentations to investors that it’s under no obligation to pay off the Big Sky debt under its $2.6 billion deal to acquire the assets of MidwestGen’s bankrupt parent, Edison Mission Energy.

“We are discussing with Edison Mission how to resolve the situation,” said Terri Denning, Suzlon’s general manager of finance and business development. “We’re not washing our hands of it. Far from it. . . .We are trying to do what’s best to make everyone a winner.”

She added that, so far, Suzlon hasn’t been in discussions with NRG.

An NRG spokeswoman didn’t respond to a request for comment. A MidwestGen spokesman wouldn’t comment beyond pointing to publicly disclosed information in SEC filings.

Suzlon agreed in 2009 to finance the project’s debt despite the fact that Big Sky didn’t have a long-term contract to sell its power at a price that would have ensured its costs would be covered. Project loans by turbine manufacturers aren’t unheard of, but they typically are made when there’s a long-term power purchase contract in place.

Suzlon opted to take the risk at the time because it wanted to demonstrate the quality of its turbines following questions regarding the functionality of earlier versions, according to people familiar with the background of the deal.

When wholesale power prices dropped shortly thereafter, Suzlon’s loan was put in jeopardy. MidwestGen tried to negotiate a deal in late 2011 with Chicago Mayor Rahm Emanuel to close two old coal-fired power plants in the city in return for seeking state help to bail out Big Sky. But House Speaker Michael Madigan, D-Chicago, rejected it, and MidwestGen agreed to shutter the two plants, which long had been a target of environmental and health groups, less than a year later anyway.

Suzlon sued Big Sky Wind LLC, the entity owned by MidwestGen, in 2012 seeking early repayment of the loan, according to an SEC filing by MidwestGen. Big Sky countersued, and the litigation still is pending. But that lawsuit quickly was overshadowed by the Chapter 11 bankruptcy petition filed in December 2012 by Edison Mission.

“If a restructuring of the loan or a sale effort is unsuccessful, Suzlon may foreclose on the project resulting in a write-off of the entire investment in the project,” the MidwestGen filing states.

As of Sept. 30, Edison Mission’s investment in Big Sky totaled $451 million in assets and $369 million in liabilities, according to the filing.

Ms. Denning said she’s confident Big Sky will continue operating, even if Suzlon takes ownership in lieu of collecting the $200 million-plus it’s owed.

“It’s a great wind farm,” she said. “It operates super well.”

URL to article:  https://www.wind-watch.org/news/2014/02/06/debt-woes-could-put-big-illinois-wind-farm-in-turbine-makers-lap/