Putting together the $2.2 billion long term financing for the $2.72 billion Shuweihat 2 IWPP – 22-year debt without cash sweeps and a thin ADSCR of 1.2x – appeared, at times, a Sisyphean task given the inertia in the bank market and lack of appetite for long-term lending in early 2009.

ADWEA owns 60% of the project, with GDF Suez and Marubeni holding 20% each. The 1,507MW natural gas-powered plant and 100mgpd desalination facility is due for completion in 2011.

Keen to avoid SEC and Sumitomo's experience with the Ras Al Zour project, ADWEA took a pragmatic approach to the delivery of the financing, allowing Suez one year to put the deal in place after award and increasing the power and water purchase agreement (PWPA) from 20 to 25 years. When the new deal finally launched into the bank market in May 2009, the momentum had turned in Suez' favour and in the final weeks before financial close, on 19 October, two more banks joined the lender line-up.

The 22-year financing is split between a commercial bank piece of just under $1.1 billion and a JBIC overseas investment loan of just over $1.1 billion. JBIC's loan is priced at a flat rate of 235bp over Libor and the commercial debt is priced at 260bp over Libor, rising to 300bp at year 10 and finishing at 350bp, with upfront fees of 325bp.

Despite the 22-year tenor, "there are no cash sweeps, and the ratcheting of debt margins does not sky rocket as in other deals," says Adil Chenaf, financial adviser, GDF Suez Energy – EMEA, "The deal was structured based on a pre-crisis tariff, which was in turn based on pre-crisis debt pricing." Given the debt pricing in the final deal has been upped from the model, whilst the tariff remains the same, there is an embedded incentive for the sponsors to refinance short-term to meet their original ROI expectations. Consequently, the 22-year tenor is likely to be much shorter in reality – a comfort to the lenders.

Banks were originally asked to commit to tickets of either $100 million or $125 million, when the debt target was $1.1 billion, but this was oversubscribed at $1.4 billion and the lenders were scaled back accordingly.

The commercial piece replaces a $945 million bridge facility signed in January 2009 that was due to expire in September but was extended by one month. The six banks that provided that loan - BayernLB, Calyon, KfW, Natixis, NBAD and Standard Chartered - all committed to the latest deal – although Calyon and Natixis joined the long term deal at the eleventh hour. The bridge was guaranteed by GDF Suez and ADWEA, and was priced at 200bp all-in.

Because the Shuweihat 2 financial model was based on pre-credit crunch pricing levels (debt started at 225bp in the original model as opposed to 260bp in the final deal), the increased debt pricing broke the mold, so a fair amount of new documentation was required to back-solve the structuring. It had been assumed that extra equity – reducing the leverage by around 2-3% – would be needed to preserve the already thin minimum and average DSCR of 1.2x. However, extra equity reduced leverage to only 79/21 from a targeted 80/20 because structural changes ensure a greater amount of cash at projectco level for debt service. ADWEA stuck to the original bid tariff but the PWPA was increased from 20 to 25 years, providing a five year tariff tail beyond the debt.

As a new equity participant Marubeni did not have to subsidise the deal as the purchase price for its 20% stake from Suez was tied to the eventual debt pricing and modelled returns. However, without confirmation from any of the sponsors, Marubeni is thought to have taken a medium to long term view on returns from the project in line with its co-sponsors.
Another challenge for the deal was the hedging. Under the ADWEA tendering procedures interest rate hedging must be put in place at signing of the PWPA, usually just after the award of the project, to lock in debt pricing. Because of global interest rate slashing to combat the effects of recession, these swaps have been carrying sizeable negative marked-to-market which in turn have lead to wider syndication of these instruments than customary.

The original long-term deal underwritten by BayernLB, Calyon and Natixis that elapsed in October 2008 due to adverse market conditions would have been the most structurally aggressive IWPP ever banked in the region, as it featured a merchant tail. Although the remodeled long-term deal relies heavily on the involvement of JBIC, courtesy of the presence of Marubeni, the deal again pushes international banks to their limits in terms of tenor and ADSCR metrics but in a different lending environment.

Only the $1.9 billion financing of Rabigh IPP on Saudi compares on tenor with a 20-year term, and 15% balloon pushing the notional tenor to 22 years. However, for Rabigh international bank participation was limited to a $175 million participation under 90% KEIC cover.

Given the length of time in putting the Shuweihat 2 deal together and JBIC's insistence that commercial banks match its 22-year tenor, is the deal a true benchmark? "Probably," says one senior banker. "But it depends on the strength of the sponsor group and the offtaker – for S2 these were as good as you'd get. Also for 22 years you will probably need a healthier ADSCR, no balloon and a PPA tail."

"I don't think Shuweihat 2 is an exception," adds Chenaf. "There was a moment of high tension during which banks were looking at each other to see where the market would move – the deal shows that there are at least 14 top banks willing to take tickets on the merits of the project and the sponsor group. Shuweihat 2 is a return to the fundamentals of a project – and here the fundamentals are very strong, and so is the ADWEA template and the sponsor group as a whole."

Ruwais Power Company
Status: Financial close 19 October 2009
Description: $2.2 billion 22-year debt financing for 1,507MW/100mgd IWPP in Abu Dhabi
Sponsors: GDF Suez (20%); Marubeni (20%); ADWEA (60%)
Mandated lead arrangers: SMBC (documentation); KfW (technical and insurance); BayernLB (modelling); Standard Chartered; NBAD; HSBC; BNP Paribas; Calyon; Societe Generale; Natixis; Samba; Mizuho; BTM; Sumitomo Trust
Agency: JBIC
Initial hedging banks: BBVA; Natixis
ADWEA advisers (from inception): HSBC; White & Case; Fichtner;
Allen & Overy; (and Investec)
Sponsor counsel: Chadbourne & Parke
Marubeni share purchase counsel: Norton Rose
Lender counsel: Milbank Tweed; Trowers & Hamlins
Model auditor: PKF
Technical adviser: Shaw Consultants International Limited (Stone & Webster)
Insurance adviser: Jardine Lloyd Thompson
EPC: Siemens AG, Samsung, Doosan
Equipment suppliers: Siemens (turbines); Doosan (MSF)