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Transcript of Mezzanine Financing for Wind Projects Mark Henderson European Wind Energy Conference 28 February...
Mezzanine Financing for Wind ProjectsMezzanine Financing for Wind Projects
Mark Henderson
European Wind Energy Conference
28 February 2006, Athens
InvestecInvestec
• Founded South Africa 1974
• Dual-listed in Johannesburg and London Market cap : c. €4.5 billion; Assets : €30 billion Assets under management : > €65 billion
• Acquired European Capital 2002
• Shareholder in Viridis Energy
• Mezzanine in Power sector
What is Mezzanine Finance?What is Mezzanine Finance?
Mezzanine (n), Italian:Mezzanine (n), Italian: An intermediate level between floor and ceiling occupying a partial area of the floor space
• “A middle layer of debt – below the senior debt layer and above the equity layer…”
• “…Mezzanine finance shows characteristics of both debt and equity”.
• “There is no strict definition of mezzanine capital”
• “Mezzanine Finance” – general term to describe various financing arrangements that rank below the senior debt
high yieldConvertible exploding
Junior debt stretched seniorSubordinated debt
Why have Mezzanine Finance? Why have Mezzanine Finance?
• Reduce equity commitments Over €5 billion new projects in
Europe alone Needs >€1billion equity every year Plus need for new development
funds
• Fills funding “gaps”: Development period 2 – 5 years per
project Periods until grants received Bank vs. Sponsor base case
Need for Project Sponsors
Sponsor Base Case
Bank Base Case
EQUITYEQUITY EQUITYEQUITY
DEBTDEBT
DEBTDEBT
To
tal
Pro
jec
t C
os
t
Covered by:Missing Funding:
Either – More Equity
Or - Mezzanine
Why have Mezzanine Finance? Why have Mezzanine Finance?
Leverage additional cashflows Reduces equity requirement
Less project equity required Increases equity returns
Not diluting equity Maintains control
Benefits to Project Sponsors
StructureStructure
Either Or:
Sponsor
Project Co
Mezz Lenders
Senior Lenders
Intercreditor
Sponsor
Mezz Co
ProjectCo
Mezz Lenders
Senior Lenders
Mezzanine: CharacteristicsMezzanine: Characteristics
• Ranking behind senior in cashflow waterfall
• Second ranking security
• But ahead of equity
• May have conversion rights
Conclusion Conclusion
• Growing need with growing wind market
• Benefits to Project Sponsors
• Flexibility in structuring But banks need flexibility in risk appetite