Goldman to sell power plant unit to Carlyle

Fri Sep 7, 2012 1:12pm EDT

A general view of the lobby outside of the Carlyle Group offices in Washington, May 3, 2012. REUTERS/Jonathan Ernst

A general view of the lobby outside of the Carlyle Group offices in Washington, May 3, 2012.

Credit: Reuters/Jonathan Ernst

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(Reuters) - Goldman Sachs Group Inc (GS.N) will sell its power plant development unit to Carlyle Group (CG.O) in the latest of a string of deals by the private equity firm since the break-up of its energy investment venture with Riverstone Holdings LLC.

The deal to buy Charlotte, North Carolina-based Cogentrix Energy LLC will give Carlyle access to three coal-fired and two solar power plants, and a development pipeline with over 550 megawatts (MW) of operational capacity.

The terms of the deal, expected to close in the fourth quarter, were not disclosed.

Goldman Sachs, which bought Cogentrix in 2003 for $115 million and assumed $2.3 billion of debt, will retain a minority stake in one of the power plants. The decision to divest it now was purely commercial, a bank spokesman said.

"After nearly 10 years of ownership, we decided the best way to maximize the remaining value of the assets and to preserve the platform was through a sales process," he said.

But the sale, carried out through a months-long auction this year, also comes at a time when major Wall Street banks are engaged in a high-stakes debate with the Federal Reserve over whether they should be allowed to continue to own and operate major pieces of energy and commodity market infrastructure.

Under existing rules, regulated banks are barred from buying and operating physical assets, although many have been permitted to engage in active trading of physical commodities. Owning the infrastructure can often boost trading profits.

But a previous amendment to banking regulations offered an apparent exemption that would apply to banks that later converted to regulated holding companies, as Goldman and Morgan Stanley (MS.N) did in 2008. The Federal Reserve gave Morgan Stanley, which also owns power generation assets, up to five years from that date to comply with rules.

Even after the sale, Goldman will have sizeable commodity sector investment. It shows no signs of moving to sell U.S. metals warehousing firm Metro International, which it bought in 2010, and earlier this year, it paid more than $400 million to buy Colombian coal mine assets from Brazil's Vale.

CARLYLE GOES BIGGER

The acquisition of Cogentrix is Carlyle's second in the energy sector in as many months. In July it struck a deal with Sunoco Inc SUN.N to save and expand the largest U.S. East Coast refinery based in Philadelphia to capitalize on the nation's shale boom.

Carlyle, the world's No. 2 alternative asset manager, will use Cogentrix team's expertise for future investment in the power sector and to acquire and develop conventional and renewable power projects across the United States, Carlyle Chairman Daniel D'Aniello said in a statement.

Cogentrix, started in 1983, has developed electric power generating and co-generating facilities throughout the United States with a combined generating capability of over 5,000 MW of electric power.

In an effort to peg a value on the deal, power traders said they were looking at Exelon's sale last month of three coal-fired power plants in Maryland for $400 million. With a total capacity of 2,648 MW, the deal came out to an average of around $150,000 per megawatt.

At that rate, the Cogentrix deal would come to some $82.5 million, although it may have commanded a premium to that rate since some of the Cogentrix plants were newer than Exelon's and included some solar power facilities.

Vinson & Elkins was legal adviser to Carlyle on the transaction.

(Reporting by Thyagaraju Adinarayan, Sunayan Bhattacharjee and Jochelle Mendonca in Bangalore, additional reporting by Scott diSavino and Jonathan Leff in New York; Editing by Saumyadeb Chakrabarty and Bernadette Baum)

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