ESB's Viridian power deal could be short-circuited
ADVISERS to Viridian, owner of Northern Ireland Electricity (NIE), have held a series of meetings with creditors in recent weeks to head off efforts by some disgruntled lenders to disrupt a sale of NIE to the ESB.
The meetings come as the ESB is poised to close a deal announced last July that will see it become the main electricity distributor across both the Republic and Northern Ireland.
If a deal isn't reached by early next year, Viridian will have to pay a penalty of around £20m (€24m) to the ESB, though advisers still hope it can be finalised as early as October.
Viridian's owner is Bahrain-based investor Arcapita. It overpaid for the business in a debt-financed deal in 2007 and now wants to cut a deal with lenders rather than simply repay the debt.
Under the terms of the original debt structure, lenders can insist on being repaid in full if Viridian is broken up or changes hands.
However, the £1.034bn the ESB is paying for NIE falls well short of what Viridian needs to repay all of the circa £1.8bn debt raised when Arcapita bought the Northern Ireland group. Viridian's plan is to use the ESB money to pay off the bulk of the most senior debt and a slice of the junior debt.
It is asking creditors to roll over the rest of the debt for a longer term at a higher interest rate. Some reinstated debt will be owed by NIE, under ESB ownership. Some will continue to be owed by Viridian.
That deal requires the unanimous consent of the lenders affected. Most will want to see it go ahead because it ends uncertainty over Arcapita's plan for the business.
But the company fears some lenders will seek to manufacture a crisis in order to extract the best possible deal in terms of the price they can charge for the reinstated debt and the amounts to be repaid in cash.
The situation hasn't been helped by the emergence of some well-known 'vulture funds' among the lenders.
They include Elliott Management, an investor famous for buying up Congo Brazzaville debt at steep discounts and suing after the African country defaulted. US investor Oaktree is also among the junior debt holders. It is involved in the debt restructuring deal being hammered out by house builder McInerney and its lenders.
Senior lenders are understood to be supportive. They will pocket the bulk of the ESB cash and remain as lenders to only the best part of the business once it is broken up -- the regulated electricity distribution and transmission business to be owned by the ESB.
Junior lenders are proving to be a stumbling block and are looking for changes to the current plan.
As it stands they will get some of the ESB cash to part pre-pay what they are owed, a concession that seems to have been agreed after a push back against an initial proposal that all of the ESB cash go to senior lenders.
Junior lenders will remain creditors of the rump Viridian businesses including Viridian Energy, a procurement business, and NIE Energy Supply.