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The Latin American project finance market is set for another barren year despite the backlog of stalled projects requiring financing, because lenders and institutional investors continue to shy away from the region.

Calpine is looking to mothball five plants that are under construction in the U.S. to avoid making a $700-800 million equity contribution that is required under the terms of the projects' non-recourse loan covenants, but creditor opposition could undermine the move.

The roster of lenders atop the U.S. power project finance landscape this year is set to shift away from the traditional heavy hitters Citibank, Credit Suisse First Boston, and Société Générale toward the mid-tier commercial banks that are proving more willing to accept the slimmer pickings as deal flow dries up.

Merger and acquisition activity in the U.S. generation market could pick up pace this year as embattled power companies are forced to lower the sale price on power plants they're divesting in order to guarantee a quick sale.

Alliant Energy Resources recently pocketed $288.8 million from an issue of 9 3/4%, 10-year notes and chose to tap the 144a market to wrap the deal speedily before year-end. "The timing is quicker," says spokesman Chris Schoenherr of the reason for choosing a private placement over a wider public offering.

With the U.K. power market mired in financial chaos, project bankers are pinning their hopes on project level financing opportunities emerging in southern Europe and the Middle East, though most predict deal-flow will remain thin at best.

New entrants, in the form of banks and hedge funds, and the restructuring of debt overload through bankruptcy filings, will provide a much-needed fillip to power trading this year, but few market officials see a short-term rebound for the battered energy-trading business. "I think 2003 will be a continuation of the bad times," says Dave Freeman, president of consultancy shop Team Power & Associates in Plano, Texas.

Charlotte, N.C.-based Cogentrix Energy has started preparatory work with its bankers on renewing a $250 million corporate revolver, even though the deal doesn't mature until October. "Companies don't want to leave it to the last minute. If they can get it done early, they're trying to do it," says one financier, who attended a bank meeting at Cogentrix's headquarters early last month. Calls to Jef Freeman, spokesman at Cogentrix, were not returned.

Alliant Energy Generation has finalized terms for a $72.7 million eight-year non-recourse facility funding its acquisition of a 390 MW plant in Neenah, Wis., from Mirant. The deal will likely be wrapped next week, says one market official, and it will be a three-bank club consisting of CoBank, ANZ Investment Bank and HypoVereinsbank.

A swathe of U.S. energy merchants and independent power producers look set to withdraw from Europe's power markets over the next 12 months, continuing a trend that emerged last year in the wake of Enron's collapse and increased rating agency and investor scrutiny over power companies' liquidity margins. "U.S. equity investors are pushing U.S. utilities to focus on core domestic operations and enhancing liquidity, and are punishing them for speculative trading and merchant operations overseas," explains Adrian Barton, head of power trading at NRG Energy in London.