Business Context and Reporting Period
This Form 8-K, filed on February 15, 2019, by Fortress Transportation and Infrastructure Investors LLC (FTAI), details the entry into material definitive agreements by its subsidiary, Long Ridge Energy Generation LLC (LREG). The filing concerns the development of a 485 megawatt natural gas-fired combined cycle power plant in Hannibal, Ohio, at the Long Ridge Energy Terminal.
Key Financial Metrics and Agreements
- Project Value: The aggregate value of the Engineering, Procurement, and Construction (EPC) and Power Generation Equipment (PIE) agreements is approximately $430 million.
- Initial Payments: As of February 15, 2019, $7.3 million was paid to Kiewit (EPC contractor) and $12.1 million was due to General Electric (equipment supplier).
- Debt Facilities:
- First Lien: A $445 million construction and term loan facility with a fixed interest rate of 7.30% per annum. Includes a $154 million letter of credit (LC) facility (expandable to $179 million).
- Second Lien: A $143 million construction and term loan facility. Interest is calculated at an applicable treasury rate plus 7.50% per annum.
- Utilization: $121 million in letters of credit were issued as of the filing date, leaving $33 million of initial LC capacity. $71.5 million was borrowed under the Second Lien facility on the filing date.
- Revenue Offtake: Fixed price power agreements cover 457 megawatts (94% of capacity) at a weighted average fixed price of $27.30 per megawatt-hour, effective February 1, 2022.
Material Changes and Project Timeline
The filing represents a significant capital deployment event rather than a change in historical financial performance. Key milestones include:
- Construction Start: Expected to commence in the second quarter of 2019.
- Substantial Completion: Guaranteed date of November 13, 2021, with a requirement for the First Lien construction loans to convert to term loans by June 1, 2022.
- Loan Maturities: First Lien Term Loans mature on December 31, 2027; Second Lien Term Loans mature on June 30, 2028.
Outlook, Risks, and Contingencies
- Non-Recourse Structure: Borrowings under the credit agreements are non-recourse to the parent company (FTAI) and are secured by the assets of the project subsidiaries.
- Financial Covenants: Post-conversion, the project must maintain a minimum debt service coverage ratio of 1.10:1.00 (First Lien) and 1.05:1.00 (Second Lien).
- Liquidated Damages: The EPC and PIE agreements include provisions for liquidated damages if the project is not completed by the guaranteed date or fails to meet performance criteria.
- Interest Payment Flexibility: The Second Lien facility allows for partial interest payment via principal capitalization (50% cash, 50% add-on) prior to and following term conversion, subject to specific limitations.
Investor Verification Checklist
- Verify the full text of the EPC, PIE, and Credit Agreements once filed to review specific default triggers and covenants.
- Monitor the $33 million remaining letter of credit capacity and potential expansion to $179 million for PJM capacity auction bids.
- Track construction progress against the November 13, 2021, guaranteed completion date to assess liquidated damage risks.
- Confirm the execution of the remaining $71.5 million Second Lien borrowing required by February 15, 2020.
- Review the fixed price power agreements to understand the variable price component tied to the PJM-AEP/DAYTON HUB-DAY AHEAD index.