Financing Energy Projects in Jordan

7/29/2019 Financing Energy Projects in Jordan

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Project Finance Presentation forEDAMA

Eversheds LLP

Thursday 16th March 2013


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Limited Recourse and Non RecourseFinancing Terms used interchangeably

What is it?

The financing of the development or exploitation ofa right, natural resource or other asset where the

bulk of the financing is to be provided by way ofdebt and is to be repaid principally out of the assetbeing financed and its revenues.

Key features


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Financing Possible routes

Limited/Non recourse debt for greenfield projects What is limited recourse

The full scope project finance version, allowing significantly lower equity commitments

It is available, but requires to go through a specific discipline

Subject to rating agencies perception

Limited/Non recourse refinancing of operational projects

Available now that more projects are actually operational and have good track records Simpler than greenfield as all construction contractual & management issues have been

resolved

May take the form at some point of portfolio refinancings (and allow for sale of minoritystakes in these as well)

Sale of minority stakes in projects, pre- or post-completion

Allows to recycle capital invested in existing projects into new ones without loss ofoperational control

Recent transactions have shown there is appetite from many types of investors for theseassets

Most interested investors to date prefer to avoid construction risk, but that will change

Allows capture of value through long term O&M arrangements or PPAs


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Project Finance Structure

Shareholders

SPV

Landlord

Offtaker

Subcontractors Subcontractors Subcontractors

Banks

Direct Agreementsand Assignments

Security (Debenture)

Limited Recourse Facility

Leases


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Key elements of bankability of windprojects


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Property and planning

Option for lease and lease

Term of lease

Certainty of rental and other costs - RPI Termination rights

Direct Agreement

Grid Connection - wayleaves

Site access roads Adjacent rights - restrictions


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Energy Yield

Wind/Solar Data

Correlation

P50/P90 debt sizing


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Debt to Equity

History of developer

Site

Funding shortfalls Contingent equity

Change of control


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Grid Connection

Date of connection

Capacity

Land rights Remedies


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Technology

Turbine supplier/Panel Supplier

Warranties

O&M Currency risk


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PPA

Term

Contract Price

Price adjustments Change in law

Counterparty risk

Security arrangements


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Construction

Longstop date

Assumed completion date

Liquidated damages Collateral warranties

Interface issues multi-contracting

Insurance and title transfer


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Operational

O&M agreement

Project management agreement

Availability guarantees (95%-97%) Debt service reserve

Maintenance reserve

Monitoring


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Bank Protections

Security structure

Intercreditor issues

Distributions and distribution conditions

Reporting requirements

Accounts and project revenue control

Insurance

Hedging agreements


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Lender Sponsor Friction points

How intrusive is the due diligence? Review of interfaces, sub-contracts, logistics and project management irrespective 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 negotiation?

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 information and at times, validation of decisions

Share retention clauses

Debt: Equity 70:30 Equity Upfront

Consecutive O&M assumptions

What are the terms and conditions for long term O&M?

Tenor, scope, liability, fixed price, counterparty

Options to exit after a few years


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PF or not to PF (1)

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 potential downside scenarios

Project can work on a stand-alone basis (which makes it easier to sell)

It can help investors and contractors!

Blame the Bank

Less zero-sum negotiations

Its really limited/non-recourse

Banks take construction risk on the basis of the contracts and committed contingencymechanisms

While sponsor involvement is valued, banks evaluate deals with no expectation of additionalcash in

Pricing will come down


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PF or not to PF (2)

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 negotiating 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 entities which have credibility as lenders advisors and ask them to lookat the project from the perspective of lenders

Good, legal, financial and technical advisors are indispensable

Pre-packaging a deal that banks will accept

Investors and contractors need to be committed to it

Counterparties will accept to incorporate banks requirements in their commercial offers onlyif they really believe that the project will not happen without external financing

Take into account the feedback from specialised advisors


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Any Questions....

...Thank you!

Indraj Mangat, Partner, Banking

Eversheds

T. +44 776 741 1508

E. [email protected]
mailto:[email protected]:[email protected]


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EVERSHEDS LLP 2013. Eversheds LLP is a limited liability partnership.

Financing Energy Projects in Jordan

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