In a year when the stimulus bill upended conventions in US renewables finance, the best-received wind deal could have come from any time in the last ten years. The $612 million financing for Fowler Ridge could have dispensed with tax structuring regardless of the incentives on offer, thanks to its wealthy, and tax-paying, sponsors, BP Alternative Energy and Dominion Resources.

Despite this illustrious parentage, the deal still contended with debt market headwinds, including renewed lender conservatism, and the challenges posed by the project's use of Clipper turbines. The Fowler Ridge syndication marked the first serious attempt since the crunch to widely distribute a wind credit.

Fowler Ridge is a 301MW wind farm located in Benton and Tippecanoe Counties, Indiana. It sells its output under two 20-year power purchase agreements. Michigan Power Company (rated BBB/ Baa2/BBB by S&P/Moody's/Fitch) takes 100MW while Dominion Energy Marketing (A-/Baa2/BBB+) takes another 200MW. The plant connects to the PJM transmission grid.

The most notable aspect of the plant is its use of two types of turbines. The project uses for the majority of its capacity 122 Vestas V82 1.65MW turbines, proven, reliable and banker-friendly equipment. But it also uses 40 Clipper Liberty C-96 2.5MW turbines; which have a patchier history. They have experienced gear-box, drive drain and blade problems, which plagued, for instance, First Wind's Steel Winds project in Lackawanna, New York.

Lenders and some sponsors have been wary of the turbines, despite Clipper's efforts to rectify the problems and willingness to stand by its warranties. Mitigating the risks posed by the turbines was at the centre of the structuring and syndication efforts on the deal. Most importantly, the sponsors put in all of their $351 million in equity up front. This equated to a conservative, though not far out of market, gearing level.

Rounding out the project's $612 million capitalization is a $261 million senior bank facility, structured as a mini-perm with a 50% balloon and underlying amortisation of 15 years. Pricing starts at 300bp over Libor, slightly within then-prevailing market norms of 350bp.

The joint lead arrangers, bookrunners and hedge providers were BBVA (administrative agent), Bank of Tokyo-Mitsubishi UFJ and Société Générale. The three leads brought in mandated lead arranger-level commitments from Santander, Caja Madrid, Banco Sabadell, Commerzbank and Dexia, and a managing agent commitment from Caixanova.

The debt package was structured to minimise lenders' worries about the turbine risk. The deal, say the leads, benefits from a fixed amortisation schedule, robust sensitivities and market standard reserve accounts and distribution tests. The sponsors are buying the production tax credits from the project, and these can be factored into lenders' base cases rather than become a source of structuring anxiety.

BP might have been able to get better terms in a more generous market, and indeed, as recently as March 2008 landed starting pricing of 125bp on its Sherbino joint venture with NRG Energy. That financing used a gas price hedge from Fortis and only Vestas turbines.

But the new financing was an important test of BP's commitment to Clipper, with which it has a joint venture for a 5,050MW prospect in South Dakota, as well as a multi-year supply agreement. Clipper's hiring of a former project finance banker will have helped in its efforts to reassure lenders, but a close relationship with an oil major will do even more.

Banks had, since the onset of the credit crunch, become much more conservative about their output assumptions for wind projects, and less willing to accept volatility. They went from financing the wind levels, and therefore power production and revenues, that could be predicted with 95% certainty (P95) to looking at what would be possible with 99% certainty (P99).

The Fowler Ridge asset could reach P99 with the benefits of the Clipper machinery, and P95 levels with the Vestas equipment alone. Thus, lenders could take a drop in their production certainty and see the Clipper turbine revenues as pure upside, or factor them into a slightly more conservative production scenario. The project as a whole would demonstrate a 33% availability factor under a P50 scenario.

The approach worked, resulting in a 30% oversubscription, and a shift back towards a top-down approach in syndication, though to say it marked the return of a pyramid-shaped underwriting market would be premature. Comparatively small commitments would bring in a mandated lead arranger title, and fully underwritten deals are still rare, aside from those still on banks' books from the pre-crunch days and now back out to market.

The market has moved on rapidly in subsequent months, as sponsors have exploited the availability of cash grants from the US treasury, and look to raise loan guarantees from the department of energy. Several sponsors are examining bond issues for greenfield projects, marrying the experience of the 144A market with operational assets and the smaller institutional placements for greenfield deals. Some, like ArcLight and Caithness, are looking at combining all of these on single projects.

But it took BP to get banks back on board, just as Shell was one of the early forces in attracting project finance banks to the US sector early in the last decade. Smaller developers, and larger ones with outsize debt requirements, will be grateful for that.

Fowler Ridge
Status: Signed 29 September 2009
Size: $612 million
Location: Indiana
Description: 300MW wind farm
Sponsors: BP Alternative Energy and Dominion Resources
Equity: $351 million
Debt: $261 million
Joint lead arrangers, bookrunners and hedge providers: BBVA (administrative agent), Bank of Tokyo-Mitsubishi UFJ and Société Générale
Lead arrangers: Santander, Caja Madrid, Banco Sabadell, Commerzbank and Dexia
Managing agent: Caixanova
Sponsor legal adviser: Milbank Tweed Hadley & McCloy
Lender legal adviser: Gibson Dunn & Crutcher
Lender technical adviser: Garrad Hassan
Lender insurance adviser: Moore-McNeil