Renewable Energy Systems (RES) Group's Astraeus portfolio financing, pushes at the boundaries of wind farm financing. The deal goes a step further than the Beaufort financing in late 2003, taking advantage of market conditions, by including construction projects within its fold. This, together with the timely closing – financial close was reached within seven weeks of mandating the banks – and the innovative common terms agreement that allows further projects to be incorporated in the future, makes the deal a milestone for portfolio wind farm financing in the UK.

The project was first touted to the project market in July 2004 when RES announced a deal for 14 operating and prospective wind farms across England, Wales, Scotland, Northern Ireland, Ireland and France (see tables). RES received an assortment of bids from potential mandated lead arrangers – some proposing a separate financing in each jurisdiction, others proposing to bundle all of the assets together.

RES quickly recognised the need for a financial adviser and RBC was duly appointed together with Norton Rose and the pre-appointed bank advisers in October 2004. A detailed term sheet was launched to the market on 17 December 2004 – allowing RES to get the parameters of a bundled financing tied down – and credit approved offers were in by 17 January 2005.

RBC (modelling, technical and insurance bank), BTM (document bank, facility and security agent), and BNP Paribas (accounts bank) came in as mandated lead arrangers, with documents agreed on 18 March, and signed on 22 March with a one-day drawdown notice.

On 23 March monies were disbursed for three principal uses: to enable RES to buy out its joint venture partner for the Irish farms, B9 who had a 50% stake in the assets; to take the project financing on some of the operational assets amounting to Eu70 million; and for down-payments for construction projects.

As an ancillary to taking out the existing project finance, all existing interest rate swaps were taken out with the exception of those provided by Fortis for the Cark farm in Ireland. Fortis' facility is now novated to the project company.

Given the historical equity there is no easy way to arrive at an all-in figure for the gearing, but the deal stands on a coverage ratio of 1.35x against base case wind forecasts (P50 energy yield assumptions). Garrad Hassan was the wind analyst.

The financing totals Eu225 million split into 14 tranches, one servicing each asset. The tenor is up to 18 years shadowing the PPAs (construction plus 15 years operation). Despite construction risk, and a sign that the market has moved on in the interim, RES is priced more slightly more cheaply than Beaufort across the board and in upfront fees – the continuum between the deals is evident by the presence of RBC and BTM.

Like Beaufort, the deal is wholly backed by power purchase agreements without any merchant risk and includes the standard corpus of covenants such as dividend locks. The assets are fully cross-collateralised, guaranteed and secured. RES is the EPC contractor under a turn-key fixed price contract.

A limited syndication is due to be launched as Project Finance goes to press, and is expected to be wrapped up on 31 May. A small number of banks, predominantly those that failed at mandated lead arranger level, are anticipated to participate.

Innovatively, the financing is structured to allow other wind farms – up to a further 200MW – to be incorporated within the agreement: the documents were drafted as a common terms agreement rather than a closed-ended facility agreement, allowing an document annex of just ten or so pages. Under the agreement the existing bank syndicate must give approval, but has no pre-emptive right to bank it. Feasibly, outside banks could come in, but in practice this is unlikely given the syndicate's knowledge of the structure and sponsor.

Given the flexibility of the structure, RES forgoes the transaction costs of tendering a funding competition for each additional wind farm in an unbundled model and avoids commitment fees, wind and regulatory/fiscal risk is widely spread, and prospective farms benefit from the cross-collectivisation of operational ones. Additional megawatts could come from any of the countries where the current farms are located.

RES has pushed the envelope for wind farm portfolio financings and state, arguably, that the financing is the first truly diversified portfolio to come to market. It goes beyond Beaufort by incorporating construction projects and has the flexibility to effectively double its size. There has been no movement on merchant portfolio risk, and there is unlikely to be so in the foreseeable future.

Interestingly, RES did consider a bond financing, such as Breeze One, but considered it too early for such a deal. Although bonds are becoming more sophisticated, with variation facilities reducing negative carry – transaction times, critical mass, and limited capital market knowledge of the asset class are still weighty negatives. Nevertheless, if and when the RES portfolio approaches 400MW in two or three years time a bond take out could be the next step forward.

Astraeus portfolio financing
Status: Closed 22 March 2005, limited syndication scheduled for close 31 May 2005
Size: Eu225 million
Description: Wind farm portfolio financing comprising 9 operational and 5 prospective farms across five jurisdictions: England and Wales, Scotland, Northern Ireland, Ireland and France
Sponsor: Renewable Energy Systems (RES)
Mandated lead arrangers: BNP Paribas; BTM; RBC
Financial adviser: RBC
Sponsor legal counsel: Norton Rose
Lenders legal counsel: Linklaters
Hedging counterparty: Fortis
Tax adviser: Deloitte
Wind analyst: Garrad Hassan
Technical analyst: Mott MacDonald
Insurance: Willis
EPC contractor: RES