Korean insurers invest $118 mn in US power generation portfolio debt

Five South Korean insurance companies have invested $118 million in senior debt of a portfolio of six US thermal power facilities, which are expected to deliver returns of the 5% range over the next 10 years.

The fixed-rate debt is part of $1.05 billion in senior notes issued by a special purpose company set up by a group of unidentified global investors to buy the portfolio from US energy investment firm LS Power. The acquisition cost around $1.85 billion.

The portfolio consists of a composite gas-fired power facility and five peaking power plants which operate during times of high demand. Peaking plants are fired by coal and other fuels with lower generating efficiency than those used for main plants.

The six power plants are located in the northeastern US and under long-term power supply contracts.

“This is a safe investment because peaker plants typically receive guaranteed prices,” said an investment banking source on Sept. 4.

The debt facility closed at $60 million with strong demand from South Korean insurers searching for longer-dated assets. After the close, it raised an additional $58 million.

They invested through a domestic fund of KB Asset Management Co. Ltd.

Private lending to US power projects emerged as safe-haven investments for South Korean asset owners, filling the void left by banks in credit markets.

But a string of their recent debt investments in US power facilities were focused on senior tranches, reflecting their preference for steady returns with low risks.

Energy Innovation Partners, a South Korean advisory and consulting firm, arranges the debt investment.

By Daehun Kim

daepun@hankyung.com