Bizkaia: a bridge too far?
Nevertheless, and despite over-subscription at senior syndication, some bankers that have been offered a piece of Bizkaia claim the deal has elements which are too aggressive ? most notably the way the equity bridge is structured.
The original Eu690 million senior debt for Bizkaia was fully underwritten on 12 February 2003 with senior syndication comprising 10 banks, including lead arranger Royal Bank of Scotland. ESB has since posted Eu4.5 million against one of the reserve account facilities, reducing the total to Eu685.5 million.
Senior syndication was 1.63 times oversubscribed ? Eu1.125 billion could have been raised at that stage ? and allocations were trimmed. AIB, BBVA, Banesto, Bank of Ireland, Bayerische Landesbank, Bank of Tokyo Mitsubishi, Fortis, HBoS and KBC all came in. On the legal side Uria y Menendez acted as overall counsel for ESB, with Clifford Chance advising on English law on the tolling agreement and Shearman & Sterling providing English financial counsel. Linklaters acted for the lenders on both Spanish and English law.
The small general syndication is expected to close this month with fairly heavy uptake from Spanish banks. The deal is strengthened by a tolling agreement (supply and full offtake) with Shell Espana which covers 15 years of the 20-year debt tenor. The merchant tail is in turn covered by further ancillary debt facilities.
The deal comprises a Eu440 million, 20-year senior term loan, a five-year Eu80 million equity bridge, a Eu35 million tolling guarantee facility, a Eu25 million debt reserve account, Eu60 million VAT facility and a Eu40 million standby facility. The debt equity split in 85/15.
Pricing on the senior 20-year debt is competitive at 140bp over Euribor from years one to five, 155bp from years six to 10, and 170bp from years 11 to 20. Pricing on the five-year equity bridge is 30bp.
In general syndication four tickets with pro rata participation have been offered on both project and VAT facilities: Arranger with takes of Eu40 million and fees of 90bp on the project debt and 25bp on the VAT. Senior co-arranger with Eu30 million on a fee of 75 bp and 25bp respectively. Co-arranger with Eu20 million at 65bp and 15bp. And lead manager on Eu15 million with debt fee of 55bp and VAT at 10bp.
Key to lender comfort is the offset of the merchant tail at the end of the 15-year Shell Espana tolling contract, through cash retention provisions that start in year 12 and a full cash sweep starting two years before the tolling agreement ends. Shell Espana also has an option to extend the tolling contract.
A further integral and controversial part of the deal is the equity bridge. Optional participation in the equity bridge has been offered at the same fees as the VAT facility. Whilst there may be some international uptake on this, the concept is unfamiliar to the domestic Spanish market and some bankers that have been offered a part of the deal still have deep reservations claiming the bridge ?is up in the air with no firm obligation from ESB should it decide, for whatever reason, to pull out pre-construction close.? ESB and lead arranger RBS have not responded to calls for clarification.
On the upside, such an event appears very unlikely. Although the European IPP market is hampered by incumbent utility strength, low electricity prices, high gas prices and lengthy permitting procedures, in Spain, the growth in demand for electricity has been around 6% since the late 1990s. That demand is forecast to continue to grow at an average of 3% per year until 2010, leading to a capacity gap in the short to medium term.
Bizkaia also uses more efficient technology than much of the existing Spanish power sector, and hence produces cheaper power. A consortium comprising GE Energy Services, Basque region-based Sener and ACS won the EPC contract in 2001. The plant, 15km east of Bilbao in north-west Spain, uses the latest GE CCGT technology and overall efficiency will be in excess of 56%, which compares very favourably with an average Spanish system efficiency of 30%. The construction programme, started in February, will be completed within 33 months and the plant will be operational in late 2005.
Bizkaia Energia
Status: In general syndication
Description: Non-recourse facility for first Spanish independent project.
Sponsor: ESB International
Debt: Eu685 million
Lead arranger: Royal Bank of Scotland
Senior arrangers: AIB; BBVA; Banesto; Bank of Ireland; Bayerische Landesbank; Bank of Tokyo Mitsubishi; Fortis; HBoS; KBC
Counsel to the sponsor: Uria y Menendez overall; Clifford Chance tolling agreement; Shearman & Sterling financial
Counsel to the lenders: Linklaters
EPC contractors: GE Energy Services; Sener; ACS
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