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									68 | pfi | Yearbook 2006                                                                                          


Invenergy gets
the full range
            In February 2005, Invenergy Wind LLC (Inven-        Dexia struc-      0Proportionate risk sharing
            ergy) awarded Dexia the mandate to lead-                              0Committed and flexible lending group
            arrange the US$390.4m financing of its first        tured and
            portfolio of wind projects with the under-          underwrote          The portfolio consists of three wind farms totalling
            standing that the financing package and the         the first wind    approximately 260MW (Judith Gap, a 135MW plant in
            completion of the three wind projects had to                          Montana; Spring Canyon, a 60MW plant in Colorado; and
            occur by the end of the year to meet the pro-       portfolio         Wolverine Creek, a 64.5MW plant in Oregon) with the fol-
            duction tax credit (PTC) benefits deadline at the   financing for     lowing features:
            time. Invenergy Wind LLC is a developer,
            owner and operator of utility-scale wind gen-
                                                                Invenergy         0Long-term power purchase agreements with utility
eration facilities. The company has significant expertise       covering the      off-takers, one of which is non-investment grade;
in the development, financing, operation and manage-            full range from   0Multiple years of wind data or long-term reference
ment of power generation projects serving a wide range                            point;
of utilities, load serving entities and industrials.
                                                                turbine           0Long-term service agreement with the turbine manu-
   Invenergy requested Dexia not only to finance 100% of        financing to      facturer;
the construction costs of the portfolio, but also to fund       term loan.        0Proven turbine technology in the GE SLE 1.5MW tur-
the early progress payments for the wind turbines on a                            bine; and
non-recourse basis. The resulting US$77m turbine sup-           Syndication       0At the time, required completion date by year-end to
ply loan was a first for a wind developer in the project        was a success.    qualify for the production tax credit (PTC).
finance market.                                                 By Tim
   At the time of closing the turbine financing, the proj-                           Since the closing of this transaction, Dexia has received
ects had not been fully baked. One of the power purchase        Ononiwu,          enormous interest for a similar structure from various
agreements (PPAs) had not received Public Utilities Com-        Vice              sponsors as varied as mom and pop shops to large devel-
mission (PUC) approval and some permits had not been                              opers. We also understand that other banking institutions
                                                                President,        have been similarly approached to provide turbine
   Dexia took up the challenge and began to analyse             Dexia Project     financing in one form or another.
methodically the risks involved and to match up the over-       Finance New          In addition to the guidelines outlined above, any
all project picture with Invenergy’s overall business                             financing structure should consider carefully the PTC
strategy. We quickly realised that this was a company with
                                                                York.             deadline even with the extension to ensure that there is
the vision, credibility, doggedness and savvy to help set                         sufficient time to complete construction of the proj-
off a new trend and that it deserved our support. To                              ect(s) in order to qualify for the PTC benefits, and more
accomplish this task, the project had:                                            importantly, that there is sufficient time to recoup the
                                                                                  residual value of the turbines should that be necessary.
0Sponsor with credibility and cogent business strategy                               A 20-year PPA with Northwestern Corporation anchors
0Sensible and economic projects                                                   the portfolio for Judith Gap along with a 20-year PPA with
0Creative structure                                                               Public Service of Colorado for Spring Canyon and a 20-
0Pre-committed (unfunded) tax equity                                              year PPA with PacifiCorp for Wolverine Creek. As with                                                                                                         Yearbook 2006 | pfi | 69

                                                                                   One of the key issues
                                                                                   for tax equity is
                                                                                   foreclosure rights
                                                                                   of the lenders
a typical wind project, each of the projects is construct-                            Getting the transaction closed depended to a large
ed under a balance of plant contract with industry-rep-                            extent on ironing out the basis by which the lenders and
utable companies in DH Blattner & Sons or TVIG. There                              tax equity would live harmoniously together after clos-
is no EPC wrap, a practice that has become fully accept-                           ing. One of the key issues for tax equity is foreclosure
ed by the bank market in the wind sector.                                          rights of the lenders. (Tax equity typically fret about the
   The financing structure is organised under a single bor-                        possibility that they invest a significant amount in a proj-
rower, Invenergy Wind Finance Company LLC, which                                   ect only to have it foreclosed upon by the lenders a
wholly owns the three project company subsidiaries                                 short while, or anytime later.)
under which the projects are held. Our credit facilities                              At the end of the day, we gave the tax equity comfort
include a turbine supply loan to accommodate the tur-                              that it will not suffer such a fate even in a worst-case sce-
bine progress payments, a construction loan, an equity                             nario if lenders find themselves in the unenviable posi-
bridge loan and a term loan, which is for 15 years.                                tion against the sponsor. The fact inherent in the wind
   The first funding of the construction loan repaid the                           sector is the need for a tax equity investor, be it a passive
turbine supply loan, which in turn will be repaid by the                           investor or an active one such as the original sponsor, in
term loan upon conversion. The tax equity (provided by                             the transaction. Given this fact, lenders should derive
Aegon entities) backs the equity bridge loan, but it is only                       comfort in giving this foreclosure protection to tax equi-
obligated to fund upon the satisfaction of certain com-                            ty, albeit temporarily.
pletion conditions. This is not a ‘hell or high water’                                In addition, for the lenders and their independent
commitment. Effectively, this results in nearly 100%                               engineer, RW Beck/Global Energy Concepts, the challenge
leverage of the project during construction.
                                                                 With regard       was also to assess the overall construction risk profile to
   With regard to the turbine supply loan facility, Dexia        to the            ensure that there would be sufficient time to complete
took a view on the market fundamentals for turbines,                               the projects on a timely basis. This comfort level assigned
which has since been proven correct, in addition to              turbine           to the project by this exercise is at the heart of accepting
other security provided by Invenergy. This is irrespective                         this transaction.
of the fact that Invenergy, as with most wind developers,
                                                                 supply loan          Another issue to structure around is the creditwor-
does not yet have a huge balance sheet to pledge. It is          facility, Dexia   thiness of Northwestern Corporation as an off-taker.
important to point out again that this credit facility was                         One may recall that Northwestern Corporation had just
also provided on a non-recourse basis.                           took a view       emerged from bankruptcy barely six months prior and
   Putting together such a complex but creative structure                          the PPA had not yet received final PUC approval. We were
is not without its challenges. Always present at the back
                                                                 on the            determined not to take any regulatory risk.
of our minds at Dexia was the potential threatening PTC          market               The lack of approval of the PUC did not have much
deadline at the end of the year and the negative conse-                            effect on the turbine supply loan facility, as we were con-
quences of missing the deadline. This put enormous               fundement-        fident on the collateral value supporting that tranche.
pressure not only on getting the deal done in time to allow                        However, receipt of the approval was a requirement
construction to commence, but also immensely influ-
                                                                 als for           under the construction loan drawdown. We also felt
enced the structure of the transaction. The fact that we         turbines.         that subsuming the Northwestern PPA into a portfolio set-
were dealing with a sizeable transaction meant that we                             ting would minimise the impact of the Northwestern
had to get it just right to be able to attract sufficient num-                     credit, thereby making it more acceptable to the various
ber of institutions to effect a successful syndication.                            bank credit committees.
   One of the key challenges encountered was to strike                                The deal structure passed the market test since the syn-
a balance between the requirements of tax equity and                               dication for this transaction was very successful. Initial-
lender protection rights. Negotiation of the conditions                            ly, Dexia fully underwrote the turbine supply loan and
upon which tax equity would fund was the most inter-                               was later joined by HSH Nordbank. Later on during the
esting and exhausting. Given the condition that tax                                construction phase, HSH Nordbank and HVB joined
equity funds upon completion and the pending PTC                                   Dexia as co-underwriters. Only a select group of banks
deadline at the time, we introduced a partial completion                           were invited for the general syndication after a careful
provision into the structure to ensure that tax equity does                        analysis of the bank market appetite. The goal was to
not walk away at the drop of a hat. The counsels on both                           reach a successful syndication but at the same time, pro-
sides, Foley & Lardner for Invenergy and Latham &                                  vide each bank with a meaningful allocation amount, as
Watkins for the lenders, would testify that the devil is in                        many of them expressed the desire for a higher hold.
the details.                                                                          In addition to the three underwriters, Allied Irish
   Tax equity was not the only party that had to accom-                            Bank, Bank of Scotland, Helaba, Manulife Financial,
modate the partial completion concept. It was also built                           Natexis, Royal Bank of Scotland and Sumitomo Mitsui
into the PPAs and a combination of both made the struc-                            Banking Corporation joined the bank group, making a
ture effective.                                                                    total number of 10 lenders in this transaction.

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