T-Solar: Bright future

Isolux Corsan's financing for its Tuin Zonne solar photovoltaic portfolio is the largest project financing for the technology to date. It was the high point of a busy year for the solar industry in Spain, as sponsors rushed to take advantage of favourable, and finite, tariffs for producers. The sector remains one of the few bright spots in the European market, and Tuin Zonne, since renamed Grupo T-Solar, provides a high, though attainable, benchmark for Isolux' competitors.

The Eu1.071 million ($1.412 billion) financing consisted of two different sets of facilities. The first, which closed on 29 January and covered 23 separate projects, consisted of a Eu700 million 19-year term loan, Eu125 million of equity, an 18-month Eu112 million VAT facility and Eu50 million interconnection guarantee facility. A smaller second financing, which covered three projects, consisted of a Eu60 million long-term loan, Eu15 million of equity and a Eu9 million VAT facility. The second financing, led by Caixanova and CajaNavarra, closed on 17 December.

The agent bank on the first and larger facility was BBVA, which brought in an additional 11 mandated lead arrangers and 13 lead arrangers. The MLAs were Caja Madrid, Depfa Bank, ICO, KBC, La Caixa, Natixis, Société Générale, Banco Popular, Banesto, Banco Espirito Santo and Caixa Geral. Lead arrangers were CIC, Intesa Sanpaolo, Banco de Galicia, Banco Pastor, Bankinter, Caixa Galicia, Bancaja, Caja Navarra, Caja Segovia, EBN Banco, Caja Cantabria, Unicaja and Bancantabria

The main facility is priced at 75bp over Euribor pre-completion, thanks to a sponsor guarantee, stepping up to 120bp post-completion, and can vary after that based on the portfolio's debt service coverage ratios. The financing is secured on Isolux' stakes in the constituent projects, one of which – 7MW Veguilla – has an outside shareholder, and its distributions from the projects would be trapped if the portfolio's debt service coverage ratio falls below 1.1x.

The financing, with the exception of the outsize club of lenders, is generous to the sponsor, as befits one of the biggest solar developers in Spain. Isolux' willingness to provide pre-completion guarantees, and patience in dealing with a large and unwieldly bank group, was key to bringing the deal to a smooth close. Isolux is responsible for both construction and operation of the portfolio, although it is using equipment from a variety of manufacturers, including Sharp, Suntech, Trina, Solarfun, SkyGlobal, XL Telecom, JC Solar, Sunlink, Yingli, and Tynsolar.

Despite this variety, the presence of outside shareholders, and the fact that each project, as per Spain's tariff regulations, must have its own special purpose vehicle, the financing's high leverage is testament to the esteem in which lenders hold Spain's generous solar tariff. Two of the second set of projects and 17 of the first set of projects are eligible for Eu0.455134 per kWh for 25 years, since they are smaller than 100kw in size, while one of the second set and six of the first set receive an Eu0.4315 tariff for 25 years.

But the tariff regime was close to being revised as the financing went to market. So Isolux, in addition to guaranteeing construction, also promised to make sure that if the projects did not come online in time to benefit from these tariffs, it would contribute sufficient equity that the portfolio would still meet the 1.25x debt service coverage ratio laid down in the financing's base case. Isolux, by bringing the projects online in time to benefit from the existing tariffs, did not have to do this.

Once in operation, the portfolio is expected to demonstrate the low levels of volatility that solar projects typically enjoy. Each unit is forecast to receive roughly 1,375 hours of sunshine per year. The project's technology is proven, its degradation easy to model, and Isolux runs each sub-project under a replicable framework operations and maintenance agreement.

Isolux might like to run future financings with a smaller cast of lenders, but it produced one of 2008's more popular deals. There was enough dealflow in the Spanish solar sector, even during the crunch, that lenders no longer needed to use access to financings to burnish their renewables credentials. More tempting is a relationship with Isolux, whose businesses straddle transport and energy, and which has picked up a select number of road concessions in Brazil and Mexico. But T-Solar, established as a standalone entity subsequent to the financing, looks like becoming an attractive renewables client in its own right.

Grupo T-Solar

Status: First set of projects closed 29 January, second set 17 December
Size: Eu1.071 million
Location: Spain
Description: 122MW solar PV portfolio
Sponsor: Isolux Corsan
Equity: Eu140 million
Debt: Eu931 million
Mandated lead arrangers (first set): BBVA, Banesto, Banco Popular, BES, La Caixa, CaixaBI, Caja Madrid, Depfa, ICO, Natixis, KBC and SG.
Mandated lead arrangers (second set): Caixanova, CajaNavarra
Lender technical advisers: Altermia, Garrigues Medio Ambiente, Sylcom Solar
Lender legal adviser: DLA Piper
Sponsor legal adviser: Uria Menéndez
Lender insurance adviser: Aon
Lenders' tax, accounting and model adviser: PwC
Sponsor's tax, accounting and model adviser: KPMG