Spain has been the market for cutting edge wind financings for the past two years - notably Eurovento and EEE. Sistemas Energeticos Cando (SEC) is no exception. The first non-recourse wind power acquisition facility in Europe, the SEC deal was made more complicated by the fact that under Spanish civil law the assets of the acquired company cannot be used as security against debt raised to finance the takeover - a major problem if the deal is non-recourse.

SEC is a wind power generation company that owns wind facilities with approximately 64,000 kW of capacity (from 97 wind turbines) at three power sites in Galicia. A 50-50 joint non-recourse acquisition facility arranged for J-Power and Marubeni in their Eu76.15 million buy-out from Gamesa of SEC, the deal incorporated an innovative security structure in the short term to overcome the Spanish legal issue.

Lenders could also take comfort from the credibility of the sponsors. Although new to the Spanish wind sector, both Marubeni and J-Power have a strong track record elsewhere. SEC is the seventh wind power plant (five in operation and two in construction) that J-Power has been involved in. Projects include the 4.5MW Shimamaki and 14.8MW Wakkanai facilities in Hokkaido. The company is also building a 13MW plant in Kagoshima Prefecture.

Marubeni has also been involved in a number of Japanese projects and has stressed its commitment to Spain with four other greenfield sites under development. Consequently neither company is an unknown wind entity.

Furthermore, the three Galician plants purchased - Monte Seixo-Cando Wind Power Generation Plant with an output of 24,420 kW (660 kW x 37 units); Serra Do Cando Wind Power Generation Plant with an output of 24,420 kW (660 kW x 37 units); and Outeiro do Coto Wind Power Generation Plant with an output of 15,370 kW (660 kW x 22 units and 850 kW x 1 unit) - have been operating since 1999-2000 and have relatively predictable risk. All three plants have an annual facility usage rate of 35%

Closed on 4 March 2003, SEC is a club deal comprising a Eu57.15 million ($68 million term loan and a Eu4.5 million working capital facility lead arranged and underwritten by Dexia (45% take) with ING (25%), KBC (25%) and Banco Urquijo (5%). KfW later came in as a participant with a take of Eu10 million as did Kommunalkredit with Eu4 million.

Pricing on the 13.5-year debt was 130bp initially, ratcheting up to 145bp after three years - slightly higher than the then-market norm but reflective of the fact that newcomers to the Spanish market, irrespective of reputation, generally pay a little more for debt.

The inability to raise cash against SEC assets to fund the buyout was overcome with a double-company structure and triggers to ensure that both companies merged within 12 months.

The term loan was provided to the acquisition vehicle - SEC HoldCo - and therefore initially benefitted only from an indirect security on the project assets through security on SEC and SEC HoldCo shares and step-in rights.

However the loan received full security over all revenues received by SEC HoldCo including those from an inter-company loan by SEC HoldCo to SEC. The working capital facility was fully secured and ensured that lenders were in control of the security package from the beginning and before the merger of the two companies.

The result is acceptable lender security within the confines of Spanish civil law and on a non-recourse basis. Legal counsel to the sponsors was Squire, Sanders & Dempsey, with Garrigues acting for the lenders.

Various incentives were put in place to encourage the sponsors to merge the acquisition vehicle with the project company as soon as possible: if it had not happened in the next 12 months the margin on the deal would have climbed 35bp. And after 18 months the margin would have gone even higher, at which point a cash sweep kicked in to pre-pay the facility and the deal would have gone into refinancing.

The incentives worked. The merger of the two companies became effective on 9 October 2003 - only seven months after financial close.

Such structures are normally unpopular with the Spanish government because a merger post-takeover means the acquirer can reap tax benefits from amortising the goodwill of the acquired company. However pricing incentive mechanisms like those in SEC are normally deemed sufficient reason for merging and are not blocked by the authorities.

The SEC deal can be speculatively seen as a transition point in the way Spanish wind is financed in the future and how the market shapes up. The traditional one-off SPV deals of the past look set to be replaced in the long term by corporate-style deals for consolidated renewables companies and, if more foreign sponsors can break the domestic grip on the market, further acquisition facilities. Nuon and E2 have just completed a small project financing lead arranged by BBVA for the 36MW Eolico Sanyta Quiteria wind farm and a number of UK and Japanese buyers are looking for footholds in Spain.

Sistemas Energeticos Cando (SEC)

Status: closed 4 March 2003

Description: first non-recourse international acquisition financing for a wind farm.

Debt: Eu61.65 million

Lead arrangers: Dexia; ING Bank; KBC; BancoUrquijo

Participants: KfW; Kommunalkredit

Legal counsel to sponsors: Squire, Sanders & Dempsey

Legal counsel to lenders: Garrigues

Technical adviser to lenders: Garrard Hassan & Partners

Model auditor to lenders: PricewaterhouseCoopers; Landwell

Insurance adviser: Willis