Goldman Sachs Group Inc. has agreed to pay $456 million in cash for El Paso Corp.’s interests in East Coast Power LLC, which owns the natural gas-fired 940 MW Linden cogeneration facility in New Jersey.

Under the agreement, El Paso Merchant Energy, a business unit of El Paso, will sell all of the common interests in East Coast Power LLC to GS Linden Power Holdings LLC, a subsidiary of Goldman Sachs. Approximately $600 million of non-recourse, project-level debt will remain outstanding at East Coast Power and its subsidiaries.

The Linden facility, located adjacent to Staten Island, supplies contracted power to the New York City market and a local refinery. Goldman Sachs pointed out that a “substantial portion” of the plant’s output is sold under long-term contracts to established, “A”-rated counterparties. Merchant power is also supplied to the New York City Zone J market and the PJM market.

The sale of East Coast Power also includes the rights to additional generation and transmission development opportunities at the Linden site.

The sale supports El Paso’s previously announced 2003 five-point business plan, which includes exiting non-core businesses quickly but prudently, and strengthening and simplifying the balance sheet while maximizing liquidity.

With this week’s announcement, El Paso has now either closed or has non-core sales under contract for $2.2 billion for 2003, or 63% of its asset sales goal of $3.4 billion for the calendar year.

The sale is subject to customary closing conditions and is expected to close within three months.

“We are pleased to re-enter the power generation market, especially with assets of this quality,” said Richard Ruzika, co-head of global commodities at Goldman Sachs. “As we found in our joint venture with Constellation Energy, owning generation assets enhances our power trading capabilities and opportunities.”

Following the announcement, Moody’s Investors Service placed the ratings of East Coast Power on review for a possible upgrade. Moody’s noted that East Coast Power’s current rating reflects concerns about the potential impact of El Paso’s credit quality upon East Coast Power. “If the proposed sale takes place, this significant credit consideration would be revised.”

Moody’s said that the rating review will assess the consequences of potential ownership by an entity with higher credit quality, the project’s economics, gas price exposure, operating efficiency and opportunities for asset optimization.

Meanwhile, Standard & Poor’s (S&P) placed its “BB+” rating on East Coast Power’s senior secured notes on CreditWatch with positive implications following the announcement.

S&P said that the “BB+” rating on East Coast Power is currently a cap on the rating as a result of its ownership by El Paso. “The transfer of ownership to Goldman Sachs will allow East Coast Power to be rated at its ‘BBB-‘ stand-alone credit quality,” said credit analyst Scott Taylor.

“Barring any prior changes to East Coast Power’s stand-alone credit quality, we will raise the rating on East Coast Power’s senior secured notes to ‘BBB-‘ upon closing of this transaction,” Taylor said. The outlook will be stable.

S&P expects that the change of ownership will not substantially affect operations of the facilities. General Electric will continue to operate and maintain the facilities as part of its long-term contract, and Goldman Sachs expects to hire some existing employees to continue to manage the assets, the ratings agency said.

East Coast Power is owned by Mesquite Investors L.L.C., a partnership indirectly owned by El Paso and Limestone Electron Trust.

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