attracting and maintaining institutional investment: panel session 2

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Copyright © 2011 Standard & Poor’s Financial Services LLC, a subsidiary of The McGraw-Hill Companies, Inc. All rights reserved.

Institutional Investment Workshop:

“Credit Issues Surrounding Offshore Wind Project Financing”

Michael Wilkins

Managing Director

Infrastructure Finance

Standard & Poor’s

July 2, 2012

2.


Agenda

• S&P's Energy Sector Ratings & Outlook

• Strong Growth of Global Offshore Wind Power Provides Investment Opportunities

• Funding Sources - Increasing Availability of Single Asset Project Financing

• Investment Barriers

• Favourable Regulations Are The Key To Increasing Investment

S&P’s Energy Sector Ratings

0

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AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ CCC

Dec-08 Dec-09 Dec-10 Dec-11 Apr-12

© Standard & Poor's 2012

Europe, Middle-East, Africa (EMEA) Utilities Long-term Ratings Distribution

• Weakened financial risk profiles due to high investment levels

• More challenging and uncertain operating environment and weak economic fundamentals

• And sovereign-induced ratings pressure

• However, sector ratings remains largely investment grade

0

10

20

30

40

50

60

70

80

Watch Neg Negative Stable Positive Watch Pos Developing Watch Dev

Dec-08 Dec-09 Dec-10 Dec-11 Apr-12

© Standard & Poor's 2012

Europe, Middle-East, Africa (EMEA) Utilities Outlook Distribution

S&P’s Energy Sector Outlook Distribution

• Mainly driven by stabilization in outlook for regulated entities (non-GIIPS) and negative transition of many

unregulated entities in recent years (i.e. downgrade + stable outlook)

• However, still a fairly high share of negative outlooks, indicating near to medium-term pressure on utility ratings

– Weaker macro-economic environment could accelerate downgrade activity

– Sovereign downgrades likely to continue to be a factor

Strong Growth of Global Offshore Wind Power Provides Investment Opportunities

• Countries are increasingly relying on offshore wind power

• Factors behind industry’s growth:

Fuel Diversification

Climate change mitigation

More recently, job creation

Funding Sources - Increasing Availability of Single Asset Project Financing

To date, most European wind projects sponsored by utilities and funded on their balance sheets

However, recent developments likely to change the investment climate:

• Electricity Market Reform (ERM) in the UK likely to increase off-balance sheet funding by utilities

• Projects under construction begin to attract private investor attraction

E.g. The €1.5bn Meerwind project in Germany, developed by Blackstone Group L.P.

• Nonrecourse debt financed exclusively with loans and participation from state lending org. or multilateral

E.g. The €5bn support scheme from German state-owned KfW Bankengruppe to Meerwind and €280m from KfW and €500m from EIB to Global Tech 1 project

• Basel III provisions could restrict bank lending to projects with the strongest credit quality and short tenors only.

Investment Barriers

Regulation

Technology

& Design

Construction Interconnection

Operation

& Maintenance

Capital Structure

Wind Resource

Investment Risks

Favourable Regulations Are Key To Increasing Investment

Determining sustainability of support schemes:

• Size: We view FITs and other incentives that are

considerably above market cost to be at the

greatest risk of cutbacks, especially in times of

economic stress and budgetary controls

• Affordability: Countries in which subsidies

represent a higher proportion of GDP are the most

at risk of regulatory changes

• Control mechanisms: The absence of caps on

installed capacity allows for uncontrolled growth,

which then translates into subsidy payments that

may be too high

• Grid management: Ineffective management of

the electricity grid may increase the cost of back-

up energy supplies considerably

* Offshore wind and most renewable energy projects owe their existence to regulatory support

* Diverse incentive policies effective in attracting offshore wind projects to the U.K., Germany, and

Denmark but not yet in the U.S.

9.


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WindForce 2012 – Offshore financing Recent trends in the financing of offshore wind farms Bremen – 28 June 2012 Dr Jérôme Guillet

Recent trends in the financing of offshore wind farms

1.  The project finance market for offshore wind 2.  Selected equity transacGons in offshore wind 3.  What’s the best route?

Confidential

Table of contents

We have an unparalleled track record in successfully closing deals for our clients

Green Giraffe Energy Bankers is a specialist advisory bouEque focused on renewable energy

Advisor to C-‐Power to raise project finance debt

325 MW

Belgium 2010

Advisor to WindMW to raise project finance debt

288 MW

Germany 2011

•  18 professionals in London (UK), Utrecht (NL) and Paris (FR)

•  Project & structured finance, M&A, legal & contracGng experGse

•  Priority given to a limited number of clients

Blackstone is “Financial Sponsor of the Year”

Completed advisory missions for over 2,000 MW of proposed capacity

Spain2011

Non-‐recourse refinancingof a solar PV portfolio

24 MW

Bankability evaluation of a 10% stake in the Gwynt y Môr offshore wind farm

576 MW

UK2010

Evaluation of a stake in a solar PV project

8 MW

France2011

Evaluation of a potentialstake in an offshore wind

farm

210 MW

HighlandGroupHoldings

Germany2011

Acquisition of a stake in anoffshore wind farm

Undisclosed

Europe2011

Bid for a 49% stake in the Gunfleet Sands offshore

wind farm

172 MW

UK2011

US2012

Financial advisory services – state waters offshore wind project

25 MW

US2012

Financial advisory services -‐ offshore wind

Undisclosed

Europe2011

Tendering strategy of turbine manufacturer on offshore wind project

Undisclosed

Acquisition of a stake in anoffshore wind farm

Undisclosed

North America2011

Acquisition of a stake insolar PV portfolio

41 MW

Italy2012

Evaluation of a stake in the Belwind offshore wind

farm

165 MW

Belgium2012

Our clients trust us on a wide variety of long term missions across Europe and North America

Germany

Non-‐recourse financing of the GodeWind 2 offshore

wind farm

252 MW

The Netherlands

Non-‐recourse financing of the Gemini offshore wind

farms

600 MW

Belgium

Non-‐recourse financing of the Northwind offshore

wind farm

216 MW

US

Non-‐recourse financing of the Cape Wind offshore

wind farm

468 MW

Europe

Non-‐recourse financing of an onshore wind farm

Undisclosed

Non-‐recourse financingand sale of a portfolio of

solar PV assets

16 MW

France

Non-‐recourse financing ofthe Block Island offshore

wind farm

30 MW

US

UK

Non-‐recourse financingof 25% stake in Walneyoffshore wind farm

92 MW

Confidential


1.   The project finance market for offshore wind 2.  Selected equity transacGons in offshore wind 3.  What’s the best route?

Confidential

Table of contents

Currently operaGonal projects Offshore wind project finance trends

Confidential

1. The project finance market for offshore wind – how big is it?

A European story A massive need for capital, and thus for PF

•  Total of 3,813 MW installed capacity as of end-‐2011

•  UK (2,094 MW) and Denmark (857 MW) are sGll the market leaders

•  866 MW connected in 2011, afer 883 MW in 2010 and 577 MW in 2009 – the

first 3 years of industrial-‐scale acGvity

•  Significant pipeline of offshore wind projects beyond 2012 with 18 wind

farms (over 5,000 MW) currently under construcGon and over 18,000 MW

fully consented

•  Projects under construcGon see commiged investments of EUR 15 billion over

the next 2-‐3 years.

•  Around 30% of the near term pipeline has been project financed (compared

to 10% in the early years)

•  Total investment of EUR 80 billion or more is expected over the decade

•  Developers, and to an increasing extent uGliGes, will need to rely on PF to

fund that investment pipeline

Source: GGEB

Typical project finance condiGons -‐ offshore

Leverage Maturity post-‐compleGon

Pricing Maximum underwriGng

2006-‐2007 60:40 10 years 150-‐200 bp 50-‐100 M

2009 70:30 15 years 300 bp 30-‐50 M

2010-‐2011 65:35 15 years 250-‐300 bp 50-‐75 M

Current market 70:30 10 years 275-‐375 bp 30-‐50 M

Confidential

1. The project finance market for offshore wind – the overall context

A wild ride

•  Banks are refocusing – again -‐ on known clients, core countries and strategic sectors of acGvity •  The good news is that offshore wind is unambiguously “strategic” for many banks today

•  Countries where offshore wind is developing are seen as “safe” and core for most banks (Germany, Benelux, UK)

•  Margins are shooEng up again

•  This reflects an increase in the banks’ cost of funding rather than an increase in the cost of risk

•  The underlying long term cost of money is falling (in a mirror image), so the overall cost of debt has not increased that much

•  Structures are currently less aggressive (raGos, maturity, covenants) than in 2011

1. The project finance market for offshore wind – past deals

•  Q7 (also known as Princes Amalia) (2006, the Netherlands, 120 MW, Vestas V80, EUR 219 M financing) •  The very first deal – set a number of precedents (debt sizing principles, mulG-‐contract construcGon risk taken via

heavy due diligence and conGngent funding, 10-‐year O&M package) •  3 MLAs, 3 addiGonal banks, plus key support from EKF

•  C-‐Power phase 1 (2007, Belgium, 30 MW, Repower 5M, EUR 126 M financing) •  ConsolidaGon deal – a more aggressive version of the Q7 structure (longer tenor, some merchant risk) •  Confirms that new turbines, even very large ones, are bankable •  1 MLA, 3 addiGonal banks, no mulGlateral

•  Belwind phase 1 (2009, Belgium, 165 MW, Vestas V90, EUR 544 M financing) •  First deal post-‐financial crisis – allowed to confirm that the early structures were sound (construcGon risk, some

merchant risk) while increasing the size thanks to heavy mulGlateral involvement •  3 MLAs, EIB and EKF, no syndicaGon – heralded the “club deal” period

•  Boreas (2009, UK, 194 MW offshore, Siemens 3.6-‐107, GBP 340 M financing) •  First UK deal, with a large number of banks (14 altogether) •  No construcGon risk, but funding under the UK ROC regime, with some merchant risk

Confidential

Early deals – 4 transacGons just before and afer the financial crisis


•  Successful structures – and really non recourse! •  DD + ConGngent mechanism structure to bear construcGon risk validated in subsequent deals •  ConstrucGon risk with mulG-‐contract structure validated and repeated •  Repeated with several different turbines, sponsors and regulatory regimes •  All early projects built within agreed budget and Gmetable, and now operaGng to full saGsfacGon

•  A fairly small number of players involved •  Only a small number of insGtuGons actually took construcGon risk •  Heavy reliance on a small number of mulGlaterals (EKF, EIB) •  The same advisors and people in almost every deal

•  A difficult market context •  No syndicaGon market for what are fairly large deals – thus a need for *everybody* on each deal •  Lack of precedents at a Gme banks were retreaGng to favored clients and familiar risks

Confidential

Early deals – Pioneers-‐precedent-‐setng, but with a small number of players


•  C-‐Power phase 2 (2010, Belgium, 325 MW, Repower 6M, EUR 913 M financing) •  Aggressive structure building on exisGng precedents (18 year financing, 70:30 leverage, mulG-‐contracGng

construcGon strategy with conGngency structure, use of a 6MW turbine) •  7 MLAs, EKF, Euler-‐Hermes, EIB

•  Borkum West 2 (2010, Germany, 200 MW, Areva M5000, EUR 510 M financing) •  First deal in Germany, and first deal with (relaGvely recent) Areva 5MW turbines; building on precedents

(construcGon risk with conGngency structure) but slightly less aggressive terms (leverage) •  4 MLAs, 7 addiGonal banks, EIB and NRW

•  Meerwind (2011, Germany, 288 MW, Siemens 3.6 MW-‐120, EUR 884 M financing) •  First transacGon with construcGon risk for Siemens turbines, first with a private equity investor, and first under

the new KfW offshore wind programme •  7 MLAs (including London-‐based banks), EKF, KfW

•  Globaltech 1 (2011, Germany, 400 MW, Areva M5000, EUR 1047 M financing) •  First deal for a 400 MW wind farm and beyond EUR 1 bn, supported by the KfW programme •  4 MLAs, 12 addiGonal banks (including several newcomers to offshore), EIB, KfW

•  BalEc 1 (2011, Germany, 48 MW, Siemens 2.3 MW, EUR 138 M financing) •  3 commercial banks & EIB in post-‐compleGon refinancing of the first German commercial wind farm

Confidential

2010-‐2011 – the market maturing


•  It is possible to close billion-‐euro transacEons •  4 billion-‐euro-‐scale deals in one year, including 2 in Germany in the exact same Gme frame •  More than 30 banks are now acGve, and more than 20 have construcGon risk exposure •  A number of different public financing insGtuGons can be tapped – none is indispensable

•  A consensus is slowly emerging on how to structure deals •  MulG-‐contracGng structures with a small number of counterparGes (2-‐7) and strong due diligence •  Early involvement of banks or bank advisors in contractual negoGaGons, with input and control on specific issues

(warranty exclusions, LD caps, interface definiGon & matrix, availability of vessels and other criGcal path equipment, project management, shareholding retenGon clauses)

•  Debt sizing rules and underlying operaGonal assumpGons are becoming more consistent across deals •  Specific focus on appropriate long term O&M arrangements

Confidential

The banking market is there if the transacGons are well structured

There is enough money for good projects •  Non recourse finance requires a specific discipline and approach to project risks •  Sponsors which cannot or do not want to follow that discipline will not raise non recourse debt

1. The project finance market for offshore wind – recent deals

Gunfleet Sands (2012, UK, 86 MW (Marubeni’s 50%), Siemens 3.6MW, GBP 158 M financing) •  First non-‐recourse financing of a minority stake in an offshore project •  Confirmed appeGte of Japanese insGtuGons for the sector (NEXI risk, funded by SMBC and Mizuho)

Lincs (2012, UK, 270 MW, Siemens 3.6MW, GBP 425 M commercial financing) •  First non-‐recourse financing including construcGon risk in the UK •  Largest amount of commercial bank risk to date

OFTO transacEons •  Robin Rigg (2011, 180 MW, Transmission Capital Partners, GBP 65 M) •  Gunfleet Sands (2011, 172 MW Transmission Capital Partners, GBP 49 M) •  Barrow (2011, 90 MW, Transmission Capital Partners, GBP 34 M) •  Walney 1 (2011, 184 MW, Macquarie-‐Barclays Infra Fund, GBP 105 M)

11

2012 -‐ Recent deal acGvity has been centered on the UK

Markets are sEll open – including for 15 year deals The proporEon of offshore wind investment being financed is actually increasing, despite the gloom

1. The project finance market for offshore wind – recent deals

Gunfleet Sands (2012, UK, 86 MW (Marubeni’s 50%), Siemens 3.6MW, GBP 158 M financing) •  First non-‐recourse financing of a minority stake in an offshore project •  Confirmed appeGte of Japanese insGtuGons for the sector (NEXI risk, funded by SMBC and Mizuho)

Lincs (2012, UK, 270 MW, Siemens 3.6MW, GBP 425 M commercial financing) •  First non-‐recourse financing including construcGon risk in the UK •  Largest amount of commercial bank risk to date

OFTO transacEons •  Robin Rigg (2011, 180 MW, Transmission Capital Partners, GBP 65 M) •  Gunfleet Sands (2011, 172 MW Transmission Capital Partners, GBP 49 M) •  Barrow (2011, 90 MW, Transmission Capital Partners, GBP 34 M) •  Walney 1 (2011, 184 MW, Macquarie-‐Barclays Infra Fund, GBP 105 M)

12

2012 -‐ Recent deal acGvity has been centered on the UK

Markets are sEll open – including for 15 year deals The proporEon of offshore wind investment being financed is actually increasing, despite the gloom

Market segments – A geographical split

•  The UK market •  Long delays on potenGal deals and no construcGon risk

taken unGl Lincs (parGal construcGon risk) •  Large gap between expectaGons of (uGlity) investors and

what the market was willing to do •  Bad image of PF generated by focus of banks on relaGvely

minor technical glitches (ie grouGng issues) •  A lot of side acGvity on the OFTO refinancing side

•  The conEnental market •  Large scale transacGons with construcGon risk have

become a regular occurrence •  Increasing number of banks and sponsors with the right

experience and track record •  Range of commercial terms is widening, as actors seek

different objecGves: •  Raising funds •  Increasing leverage and returns

•  ConstrucGon period remains “hard work”

Market segments – 2 corporate splits

•  UEliEes vs IPPs •  UGliGes did not really need project finance (whereas

IPPs did and had to accept market terms) •  Project finance is seen as more complex, more

expensive, and more Gme-‐consuming – and not really non-‐recourse (at least in the eyes of the raGng agencies)

•  Project finance requirements for early deals were seen as especially annoying by uGliGes (intrusive due diligence, desire by banks to influence contractual structure) and generally incompaGble with their own way of miGgaGng project risks

•  Investors looking for money vs higher IRRs •  Amongst investors going the project finance route, not

everybody has the same objecGves or the same ability to negoGate terms with banks

•  Some investors have successfully obtained more favorable terms from the banking market – notably leverage and pricing

•  As the market broadens, investors will increasingly be able to extract more compeGGve terms – if they have the right project and market approach

Confidential

1. The project finance market for offshore wind – some diverging trends

1. The project finance market for offshore wind – the contractual structures

Confidential

PF transacGons are always heavily contracted

Wind and offshore wind in parEcular are quintessenEal examples of comprehensive contractual structures

Project Company

Lenders Sponsor(s)

Power Purchaser

Turbine Supply

Electrical Works

Regulatory AuthoriEes

Dividends Debt Service

Equity Debt

O & M

Support/ WarranEes

ConstrucEon

Contracts

Electricity Deliveries

Electricity Payments

ObligaEon to buy renewable electricity

Tariff for such electricity

Licenses

CerEficaEon that producEon is “renewable”

ConstrucEon permits

FoundaEons

Major contracts include:

•  permits, licenses, authorisaGons, etc…

•  construcGon/supply contracts

•  electricity sales contracts (and, if applicable, green cerGficates / RO contracts)

•  O&M contracts

•  financing documents Marine construcEo

n

1. The project finance market for offshore wind – risk analysis

•  Regulatory / poliEcal risk – no to permitng risk, yes to (some) regulatory change risk

•  Price / market risk – no to volume risk, yes to (some) price risk

•  Counterparty risk – increasing agenGon as projects grow in size

•  Technology risk – core risk, but banks have shown willingness to bank new turbines

•  Wind risk – easier offshore than onshore; wake effect is key worry

•  ConstrucEon risk – sGll the toughest risk (mulG-‐contracGng), not done in London market yet

•  OperaEng risk – taken on the basis of long term O&M agreements with WTG manufacturers

Confidential

Offshore wind adds new risks to tradiGonal PF risks

Offshore wind is one of the most complex industries to be project-‐financed

Oops, ovality!


1.  The project finance market for offshore wind 2.   Selected equity transacEons in offshore wind 3.  What’s the best route?

Confidential

Table of contents

2. Selected equity transacEons in offshore wind

•  Gode Wind 1 (2007, DE, 80 turbines, 90% sold by PNE Wind to Econcern) •  Sale of a permiged project to an investor explicitly focusing on non recourse financing •  Project purchased back by PNE Wind following bankruptcy of Econcern

•  Boreas (2009, UK, 194 MW, Siemens 3.6 MW, 50% sold by Centrica to TCW) •  Poryolio (which also included a 36 MW onshore wind farm) sold as fully operaGonal assets •  TransacGon simultaneous with financial close of a long term non recourse refinancing of the poryolio

•  Walney (2010, UK, 367 MW, Siemens 3.6 MW, 24.8% sold by DONG to PGGM/Ampere) •  TransacGon closed before final construcGon of the project (which was already well under way) •  Deal includes compleGon commitments by DONG •  First equity sale to a pension fund •  TransacGon designed from the start to allow for refinancing of the minority stake (sGll pending)

•  Nysted (2010, DK, 166 MW, Bonus 2.3 MW, 50% sold by DONG to PensionDanmark) •  TransacGon amount of EUR 94M, valuing the project at 1.15 MEUR/MW •  One of the first offshore wind projects, with a 10 year track record •  Show uGliGes are willing to take long term O&M risk on the basis of a good track record

17

Notable equity transacGons in recent years

2. Selected equity transacEons in offshore wind

•  Anholt (2011, DK, 400 MW, Siemens 3.6 MW, 50% sold by DONG to PensionDanmark & PKA) •  TransacGon closed before construcGon started •  DONG provides a 15 year O&M contract and a compleGon guarantee •  At DKK 6 billion (EUR 805 M – 4.03 MEUR/MW) it is the largest equity transacGon to date in the market

•  Nördlicher Grund (2011, DE, 80 turbines, 100% sold by Eolia to Blackstone) •  Announced on the same day as Blackstone closed the financing of Meerwind •  Project sold with permits but an otherwise early stage of development •  Demonstrates appeGte of some financial investors for full development risk

•  Gunfleet Sands (2011, UK, 172 MW, Siemens 3.6 MW, 50% sold by DONG to Marubeni) •  TransacGon announced at at GBP 200 M (EUR 230 M), ie a price of 2.65 MEUR/MW •  Project sold afer compleGon •  TransacGon confirms growing interest in offshore wind from Japanese investors

•  Borkum Riffgrund (2011, DE, 277 MW, Siemens 3.6 MW, 100% sold by EK to DONG; 50% then sold to Lego) •  Purchase of permiged project by DONG at EUR 30 M, ie EUR 0.9 MEUR /MW •  Sale of 50% to private investor at DKK 4,700 M (EUR 630 M -‐ 4.66 MEUR/MW) shows development premium

18

Major equity transacGons in recent years

2. Selected equity transacEons in offshore wind – some lessons

•  A wider range of investors beyond uEliEes than people assume •  Infrastructure funds and pensions funds (PensionDanmark, TCW, PGGM) •  Private equity groups (Blackstone, etc) •  CorporaGons with specific strategies (LEGO, Colruyt, Marubeni) •  …. And many more sniffing around the sector

•  ValuaEons are actually relaEvely consistent •  Permiged projects – development cost + premium @ 200kEUR/MW •  Contracted projects – construcGon cost @ 3.5MEUR/MW unlevered (or 1.2 MEUR/MW levered) •  OperaGonal projects – linked to regulatory framework and IRR target of investors (8-‐10%)

•  Trade off between construcEon risk and returns now closely examined •  As more assets are operaGonal, the universe of investors grows and IRR targets are going down •  A number of investors are now looking to take construcGon risk to improve returns (to double digits) •  A “bankable” deal is also one which many investors can find agracGve

Confidential

The investor market is there (also) if the transacGons are well structured


1.  The project finance market for offshore wind 2.  Selected equity transacGons in offshore wind 3.   What’s the best route?

Confidential

Table of contents

3. What’s the best route?

Confidential

Banks focus on interfaces between key tasks as much as those between contracts

The higher risks borne by the banks impose different development and contractual approaches

Project Company

Lenders Sponsor(s)

Turbine Supply

Electrical Works

Regulatory AuthoriEes

O & M

Support/ WarranEes

ConstrucEon

Contracts

ConstrucEon permits

FoundaEons

Several completely different industries

•  Turbine manufacture •  FoundaGon / steelwork supplies •  Electricals •  Cabling •  Marine construcGon work

•  No obvious general contractor

And yet banks do take construcEon risk

•  Focus on project management •  Focus on key interfaces •  Understanding of criGcal path items •  Heavy involvement in contract negoGaGon

Marine construcEo

n

Direct agreements

Interfaces

Project management

Due diligence


•  RaEngs agencies have a negaEve view on non-‐recourse debt •  They consider that uGliGes will not walk away from a strategic project and thus debt is not really non-‐recourse •  In countries where power is sold to the market, uGliGes which provide PPAs are considered to have a long term

liability under the project and this is counted against them by raGngs agencies •  Finally, certain uGliGes have covenants in their corporate credit faciliGes which prevent them from doing project

finance if they control the project (and uGliGes typically prefer to control projects)

•  UEliEes have gone toward equity soluEons •  Use of UJVs or IJVs which allow pro rata consolidaGon of project equity •  Sale of minority stakes (up to 49.9%) in projects

•  This comes in addiEon to the other perceived issues of non recourse debt •  More expensive •  Intrusive involvement of mulGple external parGes •  No results (UK market percepGon)

Confidential

How raGng agencies look at non-‐recourse debt for offshore wind remains a contenGous isue


•  Non recourse debt for greenfield projects •  The “full scope “project finance version, allowing significantly lower equity commitments •  It is available, but requires to go through a specific discipline •  Subject to raGng agencies percepGon (as discussed separately)

•  Non recourse refinancing of operaEonal projects •  Available now that more projects are actually operaGonal and have good track records •  Simpler than greenfield as all construcGon contractual & management issues have been resolved •  May take the form at some point of poryolio refinancings (and allow for sale of minority stakes in these as well)

•  Sale of minority stakes in projects, pre-‐ or post-‐compleEon •  Allows to recycle capital invested in exisGng projects into new ones without loss of operaGonal control •  Recent transacGons have shown there is appeGte from many types of investors for these assets •  Most interested investors to date prefer to avoid construcGon risk, but that will change •  Allows capture of value through long term O&M arrangements or PPAs

Confidential

There are actually plenty of routes open


•  How intrusive is the due diligence? •  Review of interfaces, sub-‐contracts, logisGcs and project management – irrespecGve of contractual structure •  Review of technology, supply chain, quality control processes, key personnel, sub-‐contractor creditworthiness

•  How involved are the banks (or relevant advisors) in contract negoEaEon? •  Requirement for a number of PF-‐standard clauses •  More explicit warranty and interface language •  Decision on number of contracts •  Responsibility for vessels •  Parent company guarantees or performance bonds

•  How strict are the financial covenants? •  Detailed informaGon – and at Gmes, validaGon of decisions •  Share retenGon clauses •  Debt sizing principles

•  What are the terms and condiEons for long term O&M? •  Tenor, scope, liability, fixed price, counterparty •  OpGons to exit afer a few years

Confidential

The coming fights between lenders, investors and contractors


•  It helps improve risk discipline for the project •  More external eyes on contracts, interfaces and detailed project structure •  Specific focus by banks and their advisors on potenGal downside scenarios •  Project can “work” on a stand-‐alone basis (which makes it easier to sell)

•  It can help investors – and contractors! – obtain more favorable contractual terms •  Using banks as a “bad cop” can be useful in contractual negoGaGons (true for both investors and contractors!) •  3-‐way negoGaGons can allow you to get away from zero-‐sum negoGaGons

•  It’s really non-‐recourse •  Banks take construcGon risk on the basis of the contracts and commiged conGngency mechanisms •  While sponsor involvement is valued, banks evaluate deals with no expectaGon of addiGonal cash in

•  It’s no longer so expensive •  Recent deals have seen overall cost of >15-‐year debt at 6%

Confidential

Project finance for offshore wind is not just about leverage


•  It needs to be an early decision by investors •  A lot of the value from project finance discipline comes at an early stage, when choosing the contractual

structure and negoGaGng the relevant contracts •  The good news is that a lot of that work can be done without involving large banking groups, by using a small

number of specialised advisors

•  It requires experienced advisors •  Bring in at your side enGGes which have credibility as lenders’ advisors and ask them to look at the project from

the perspecGve of lenders •  Technical advisors (Mog, Sgurr) are indispensable •  We believe we can also bring value in pre-‐packaging a deal that banks will accept

•  Investors and contractors need to be commiked to it •  CounterparGes will accept to incorporate banks’ requirements in their commercial offers only if they really

believe that the project will not happen without external financing •  Do take into account the feedback from specialised advisors, otherwise it won’t work

Confidential

You cannot improvise a project finance deal

Paris Utrecht

8 rue d’Uzès, 75002 Paris

tel: + 331 4221 3663

email: fr@green-‐giraffe.eu

Maliebaan 92, 3581 CX Utrecht

tel: + 31 30 820 0334

email: nl@green-‐giraffe.eu

hgp://www.green-‐giraffe.eu London

133 Houndsditch, London EC3A 7BX

tel: +4475 5400 0828

email: uk@green-‐giraffe.eu

27

Where to reach us

Debt Finance and the role of development banks

Amit DewanManaging Director, Project Finance+44 (0) 20 [email protected]

European Project Finance League Table Analysis: 2012 - YTD

Source: Dealogic ProjectWare, 20th ofJune 2012

11

2

16

2

131

2

16

1 1 1 1 2 1 10

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

France

Uzbekistan

United Kingdom

Germany

Italy

Norway

Finland

Spain

Ukraine

Bulgaria

Netherlands

Belgium

Portugal

Ireland

Slovak Republic

Deal Value (EUR)

3

Disclaimer

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Corporate & Investment Banking UniCredit Bank AG, Munichas of 02 July 2012

attracting and maintaining institutional investment: panel session 2

Business

investment climate

investment grade

high investment levels

utilities projects

offshore wind power

project basel

european wind projects

bn meerwind project