SunPower closed Italy’s first ever project bond and the first publically-rated and listed solar project bond in the world on 15 December. Structured as a securitisation of loan receivables, BNP Paribas and Societe Generale, arranged 18-year loan facilities worth Eu195.2 million ($260 million), split into two equal tranches of Eu97.6 million and were bookrunners for the bond. Each loan tranche corresponds to the 18-year fixed-rate class A1 and A2 bonds.

The Eu97.6 million class A1 bonds are guaranteed by Italian export credit agency SACE and sold to institutional investors and the Eu97.6 million class A2 bonds were entirely placed with the EIB. Societe Generale also provided two 5-year VAT facilities worth Eu22 million.

The SACE-wrapped A1 tranche, which is rated by Moody’s the same as SACE, Aa2, is priced at a fixed rate of 5.715%, equivalent to 445bp over 6-month Euribor (assuming a Euribor rate of 1.26%). The A2 bond placed with EIB is priced at a fixed rate of 4.839%, equivalent to 358bp. The blended equivalent margin is 402bp, which is much higher than the current bank margin benchmark for Italian PV deals.

For example, First Reserve’s recent 70MW Rovigo financing had a Eu240 million fully amortising 18-year term loan priced at 265bp stepping up in equal six-year intervals to 315bp. The deal had lower leverage, at 80/20.

Nevertheless, the deal opens the capital markets to a new asset and demonstrates to debt and equity institutional investors that solar PV technology is considered investment grade by at least one of the rating agencies. The bond pricing suffered because investors were skittish when the paper was marketed about European sovereign failures and the possible contagion from the Greece, then Ireland, bailouts.

The project consists of the development, construction, operation and maintenance of two PV plants with 45.3MW and 6.1MW capacities located at two adjacent sites in Montalto di Castro. Sponsor of the project is SunRay, the project development arm of NASDAQ-listed SunPower, which is also acting as EPC and O&M contractor for the two plants.

The project is based on back-contact crystalline silicon module technology provided by SunPower. The photovoltaic modules are mounted on SunPower T0 single-axis trackers, which track the sun path from east to west during day-hours, thus maximising the energy yield.

Project revenues mostly consist of a 20-year fixed feed-in tariff, which is paid by GSE (a state-owned entity) on top of the electricity market price. Despite wrapping the bond, SACE insisted that the underlying project was rated, given that it is a new asset class for the agency. In rating the underlying project Baa3 Moody’s says that the rating reflects that a “large portion of the revenues are based on a feed-in tariff that is fixed throughout the term of the financing, however there is also some exposure to wholesale power prices; (ii) straightforward construction and operation with comprehensive performance guarantees from SunPower Cor­poration; (iii) mono­crystal­line silicon represents reliable technology, however degradation assumptions may be subject to estimation error; (iv) financial metrics adequate for a Baa3 rating; and (v) the uncertainty of the solar resource estimate.”

Both plants are mechanically complet­ed and grid-connected, and thus eligible for the Eu0.346 per kWh 2010 feed-in tariff. Commissioning and acceptance tests will be completed by the first quarter of 2011, when the provisional acceptance certificates are due to be signed.

Debt sizing has been defined to produce a minimum average debt service coverage ratio of at least 1.4x under the base case, a maximum tenor equal to 18 years from commercial operation date (in order to have a 2-year tail before the expiry of the feed-in tariff period) and gearing equal to 85%.

According to the intercreditor agreement, any payments made by SACE to the issuer will be exclusively applied towards the payment of interest and principal on the class A1 notes. Repayment of the class A1 and class A2 notes will be according to a semi-annual sculpted repayment schedule, starting from September 2012.

The financing is a complex structure combining a standard project finance and an Italian Law 130 securitisation. Detail­ed structuring was also required to avoid potential claw-back of loan guarantee payments in the event of a project insolvency. SunRay’s proactive approach help­ed the process, because it has been working with the rating agencies directly, rather than through the banks.

The deal is also the first time the EIB has bought project bonds and structured its involvement as a bond investment and it is the first guarantee issued by SACE in relation to a project bond.

Despite the pricing, the financing should set a template for the capital markets refinancing of other solar energy projects, en­abling banks to recycle capital and improving liquidity in the sector. The deal also reopens the European project finance bond market after credit crisis and collapse of most of the monoline insurers. Perhaps un­covered BBB-/BB+ project bonds may be attempted in the not-so-distant future. 

Andromeda Finance
Status: Underlying project financing signed on 26 November 2010 and disbursed in full 29 November.
Bond issue date 15 December.
Description: Securitization of loan receivables to finance 51MW PV plants in Montalto di Castro, Viterbo, Italy
Sponsor: SunPower Corporation
Lead arrangers: BNP Paribas and Societe Generale
Sponsor’s legal adviser: Allen & Overy
Lenders’ legal adviser: Linklaters
Lenders’ technical adviser: Fichtner
Lenders’ insurance adviser: Marsh
Lenders’ tax adviser: Maisto e Associati
Electricity market adviser: Pöyry
Model auditor: Operis
Accounting/tax issues: Studio Tributario e Societario in association with DeloitteTouche Tohmatsu
EPC contractors: SunPower and Terna