News & Analysis

Tenaska’s fund closes without co-investment partner

Bain Capital is noticeably absent from Tenaska’s $838m energy fund, after the two sides had worked out a co-investment agreement in 2003.

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When Tenaska Capital Management first put together the blueprint for its inaugural private equity fund in 2003, the firm aligned itself with Boston-based Bain Capital. The original plan called for Bain to provide $500 million to a joint $550 million investment vehicle, co-sponsored by Tenaska. Then Tenaska was to raise a separate vehicle, targeted at $750 million, in which Bain would be given exclusive co-investment rights for each deal.

However, when Tenaska announced its fund closing earlier this week (at $838 million), Bain Capital was noticeably absent from the news. 

Tenaska Energy senior managing director Paul Smith tells PEO: “As 2003 evolved, we discovered that there weren’t that many opportunities. We took that time to reevaluate the co-investment joint venture and ultimately determined that it made more sense to maintain our flexibility.”

Bain’s departure ultimately did little to encumber Tenaska’s fundraising, as the group was able to exceed its $750 million goal for the inaugural Tenaska Power Fund. The private equity vehicle has also had no problem finding deals, and has already acquired two power generation facilities this year: a 315-megawatt power station in Virginia for $38 million and a 308-megawatt power peaking facility in Chicago for $89 million.

Despite the split between Tenaska and Bain, Smith notes that the two sides continue to maintain strong relations, and Tenaska has not ruled out investing with Bain in future transactions. In fact, the pairing has made some joint offers in auctions already, Smith said, although nothing that has yielded an actual investment.

“It was a mutual agreement,” Smith says of the parting. “It shouldn’t reflect negatively on either party. It just made sense for both of us to be free to choose which deals we want to work together on.”

Tenaska Capital Management, an affiliate of Nebraska-based power generation outfit Tenaska Inc., is headed by Smith and Howard Hawks, chairman and chief executive officer of Tenaska Energy.