Carlyle injects mezzanine debt into energy deal

The Carlyle Group has expanded its energy mezzanine business, agreeing to finance the construction of a biomass power project in Connecticut.

The Carlyle Group has agreed to provide financing for the construction for a $225 million Plainfield Renewable Energy biomass project through its Energy Mezzanine Opportunities Group, the firm announced in a statement.

The project, which will be constructed in Plainfield, Connecticut, will generate 37.5 megawatts of clean energy for the equivalent of 37,000 homes. Connecticut Light & Power will purchase power from the plant, which will be created through the consumption of wood leftover from construction and demolition products, recycled pallets and land clearing materials. The PRE project is expected to be completed in December 2013.

Carlyle launched its debut energy mezzanine opportunities fund last year. US Securities and Exchange Commission documents filed in January 2011 indicate the fund has an $73.5 million under management. Its offshore counterpart, the Cayman Islands-based Carlyle Energy Mezzanine Opportunities Fund-A, has an initial $85 million under management.

“We’re seeing a tightness in the credit market right now, particularly in the size of deals we do,” Carlyle principal Rahul Culas told Private Equity International. “There’s a solid volume of opportunities … We think that 2012 will be a pretty busy year.”

Carlyle typically invests around $25 million per deal in its energy mezzanine investments, Culas said. In the past, debt financing in the sector had largely been provided by European banks, who have been less willing to commit to deals since the onset of the sovereign debt crisis. This has created an opportunity for Carlyle, as well as other firms, to enter the market, Culas said.

In August, the firm completed its first investments from its energy mezzanine business, deploying $40.5 million in mezzanine capital into a pair of energy exploration and production companies. Carlyle deployed $20 million in mezzanine capital to Core Minerals, which focuses on oil and gas opportunities in the Illinois Basin, and an additional $20.5 million to Black Raven Energy, a Denver, Colorado-based exploration and production company. The companies will use the mezzanine capital for acquisitions and development of reserves.

Carlyle is not the only firm to enter the energy mezzanine business recently. Energy Capital Partners is targeting $500 million for its mezzanine opportunities fund, which launched last year, according to SEC documents. ECP received a $50 million commitment for the fund from the Teachers’ Retirement System of Louisiana last week.

Other firms that have launched or closed mezzanine funds in the past year include Morgan Stanley Credit Partners, Kohlberg Kravis Roberts and Blackstone Group-affiliate GSO Capital Partners.