North Carolina-based power plant developer Cogentrix is currently in talks with Dynegy and banks to resolve a Dynegy subsidiary’s default under loan agreements tied to the construction of an 816 MW power plant located in Louisiana. The default was automatically triggered in the wake of several ratings agencies lowering their credit ratings on Dynegy.

At issue is a power plant located in Louisiana’s Ouachita Parish, that went into service recently. Dynegy previously agreed to deliver natural gas to power the plant’s turbines and accept all of the output. Cogentrix owns 50% of the plant and entered into a specific tolling contract related to the project a couple of years ago.

Prior to terminating its merger agreement with Cogentrix, Aquila voiced doubts about the deal. Among other things, Aquila said that recent downgrades by Standard & Poor’s, Fitch Ratings and Moody’s Investors Service “are expected to cause a Dynegy subsidiary to default under a sizeable agreement to purchase power from a Cogentrix subsidiary, calling into question the Aquila-Cogentrix agreement.”

Cogentrix spokesman Jeff Freeman noted that under the terms of the Ouachita project’s loan agreements, if the tolling contractor has its credit rating go below investment grade there is an automatic default triggered in the loan agreements. In this case, the tolling contractor is a Dynegy subsidiary. “Frankly, no one could have ever imagined something like that happening when the contract was entered into because of the stature Dynegy has,” he added.

“We are in dialogue currently with Dynegy, as well as the banks on the project, and we’re addressing it,” Freeman told NGI. “To us, it is obviously a default, but it is not something that we can’t address.” He underscored the fact that the plant went into commercial operation a couple of weeks ago “and it is being dispatched into service by Dynegy so there is a market for the output and they are taking it under the terms of the contract,” he said.

“So it’s something that we feel like we can remedy, but it’s just a situation where we have to be in contact with them and the banks to get it resolved,” Freeman added. The end goal of the talks between Cogentrix, Dynegy and the banks is to “make sure everybody is comfortable” and to get the default issue resolved. “Because it was an automatic default, we have to pay attention to it.”

The banks involved in the talks provided the debt for the power project’s construction. “The revenues from that tolling contract are the revenues that would service that debt, so we have to obviously address this,” Freeman said.

Meanwhile, in the wake of the scuttled deal with Aquila, Cogentrix doesn’t appear to be completely closing the door on entertaining other offers for the firm. “The ownership of the company have been approached numerous times over the years — frankly, since the inception of our company back in ’83 — with different types of offers,” Freeman noted.

Cogentrix is a privately-held company whose stock is 100%-owned by the Lewis family. “The family takes them all seriously, gives them consideration and makes a determination, and frankly I don’t see that changing going forward,” the Cogentrix spokesperson added.

©Copyright 2002 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.