Exeltium’s Eu2 billion ($2.72 billion) phase 1 closed in April with an oversubscribed commercial tranche and a mezzanine bond from a government-controlled lend­er. Branded a ‘virtual power plant’, Exeltium can either be seen as a project financing with no physical assets, or as a unique way of funding nuclear generation capacity.

The Exeltium special purpose vehicle was created in 2006 by a group of six electricity-intensive companies based in France; Air Liquide, Arcelor Mittal, Arkema, Rhodia, Rio Tinto Alcan and Solvay. It is effectively a device to allow the companies to bulk-buy cheap elec­tricity from EDF without breaching EU liberalisation and competition rules.

The volumes purchased by Exeltium from EDF under a long-term supply agree­ment will be fully sold on to Exeltium’s shareholders under take-or-pay contracts of up to 24 years. As a result, the SPV by­passes the Euro­pean Commission’s re­stric­tion on long-term energy contracts with state-owned producers, which the EC de­fines as any contract in excess of one year.

EDF enjoys the stability of long-term contracts, though the electricity is sold at a heavily reduced rate. The sweetener for EDF is that it can use the upfront capital from Exeltium to fund the development of its Flammanville 3 nuclear plant. There is, however, no formal link between the financing of Exeltium and Flammanville, separating any construction or operating risk at the nuclear plant from the virtual power plant.

The financing for Exeltium was origi­n­ally double the size, Eu4 billion, and came close to signing for the full amount in 2007. At this time Natixis, Citi, RBS and BBVA were willing to under­write Eu1 billion each, with one of the main conditions prece­dent being approval from the Euro­pean Commission. Approval was not forthcoming, however, and this financing fell apart.

EC clearance finally came in August 2008 and the original banks, minus Citi, started to put the financing together. The fol­lowing month Lehman collapsed. The process again unraveled. Banks’ lending criteria changed and negotiations stalled before a term sheet could be signed.

The EC verdict had also placed conditions on the Exeltium project. The Commission voiced concerns about the anticompetitive nature of Exeltium in its original form, worrying that EDF might maintain its dominance of the French electricity market indefinitely. Significantly, the EC introduced an opt-out clause that allows offtakers to unwind their commitments after 10 years, enabling other large French offtakers to join Exeltium. If several off­takers unwind their commitments, Exeltium is free to sell the surplus on the market.

This complicates the deals risk profile, previously comprised mainly of counterparty default, by adding potential merchant risk. The EU’s compromise reflects the dual nature of Exeltium; on the one hand it fulfils its practical desire for nuclear expan­sion but, on the other, it marks a step back from its ideological commitment to market liberalization.

In the face of the financial crisis and the EC verdict, both the financial structure and size of the project had to change. The life of the commercial debt, originally coinciding with the contracts’ 24 years, was cut to 9.5 years. This is because that the first opt-out, and the possibility of merchant risk, comes in at year ten. At the same time, constrained liquidity meant that debt and offtake levels were halved. The remainder has been pushed into a proposed second phase of Exeltium.

The Eu1.59 billion 9.5-year term loan was arranged and syn­di­cated by four French banks, BNP Paribas, Credit Agricole, Natixis and Société Générale. Natixis was financial adviser to Exeltium, and the deal also received a BBB- rating from Standard & Poor’s.

The final syndicate consisted of 10 banks and Exeltium closed oversubscribed. Banca IM, Banco Santander and BTMU joined as mandated lead arrangers, Dexia as a lead arranger and Banesto and ING as arrangers. The four initial MLAs provided Eu260 million each, while the three remaining MLAs each funded Eu150 million. Dexia came in for Eu75 million, ING for Eu50 million and Banesto for Eu25 million.

Pricing on the debt starts at 250bp over Euri­bor, with a 50% commitment fee of 125bp. After two years the margin rises to 300bp before finally reaching 400bp after year four. At the same time, a 30% cash sweep starts in year three and increases to 100% in year six. These step-ups and sweeps are to encourage refinancing, with payment of any outstanding debt due at the end of the loan life.

Caisse des Dépôts et Consignations pro­vid­ed Eu233 million in junior debt, in the form of subscribing to a mezzanine bond. The off­tak­ers are investing Eu175 million in equity, with the holdings distributed on a pro rata basis in relation to their offtake levels. As a result the borrower is highly geared, with a 91:9 debt to equity ratio, or an 80:20 debt to mezzanine and equity ratio.

Besides the six founding members of Exeltium the 20 other shareholders are: Ahlstrom Labelpack, Ahlstrom Specialties, Arjo­wiggins Papiers Couchés, Befesa Valera, Comilog Dun­kerque, Eaux du Sud Parisien, Gascogne Paper, Ineos Manufacturing France, Linde France, Norske Skog Golbey, Nyrstar, Omya, Papeteries de Clairefontaine, Perstorp France, Polimeri Europa France, Roquette Frères, Saint-Gobain Isover, Société des Produits Chimiques d’Harbonnières, Tessenderlo Chemie, Total Petrochemicals France.

Exeltium marshals the interests of its twenty-six members, EDF and the European Commission, whilst still remaining an attractive investment for commercial banks. In the words of Simon Ratledge, partner in Linklaters’ Paris office: “Exeltium is a highly structured transaction – certainly from the legal perspective, but above all in terms of its financial engineering. The basic structure rests on a blending of credit risk across a pool of offtakers and relies on bespoke mechanics (including lock-up events and cash sweeps) developed to address key changes to the initial credit analysis arising over time as a result of factors such as rating downgrades and certain market/client profile events.” 

?Exeltium
Status: Financial close 13 April 2010
Size: Eu2 billion
Location: France
Description: Upfront monetisation of a 24-year offtake contract between EdF and power-intensive industrials.
Founding sponsors: Air Liquide, ArcelorMittal, Alcan, Arkema, Rhodia, Solvay.
Mandated lead arrangers: BNP Paribas; Banco Santander; Credit Agricole; Banca IMI; Mitsubishi UFJ; Société Générale; Natixis.
Arrangers: Dexia, Banesto, ING.
Mezzanine lender: Caisse des Depots et Consignations
Financial adviser to the sponsors: Natixis
Legal advisers to the sponsors: Freshfields and Gide Loyrette Nouel
Legal adviser to the lenders: Linklaters
Legal adviser to CDC: Allen & Overy