Export credit agencies have long looked for ways to finance a series of smaller projects while keeping a lid on transaction costs. But sponsors with a sufficiently strong pipeline of projects are a rarity, and not all of these projects will be eligible for ECA support. The resulting portfolio fin­anc­ing, though, is very attractive to sponsors.

Private equity-funded ContourGlobal and its management are probably best known as developers of conventional independent power projects, and its assets include Togo’s largest power plant (financed in 2009 with an Opic-provided loan) and the FibroMinn biomass plant in Minnesota. This segment lends itself to classic large single-asset project financings

But Contour’s other big business, which provides small inside-the-fence energy and water services to industrial users, is more de­manding from a lender. ContourGlobal Solu­tions has a master agreement with Coca-Cola Hellenic, the second-largest bottler of Coca-Cola products, to provide power, water, heat and carbon dioxide to 17 of its plants. The offtaker is listed, though Coca-Cola owns a substantial stake, and is rated A3/A (Moody’s/S&P).

Financing a large number of small, technologically advanced plants but having them dependent on a single counterparty presents challenges. Large inside-the-fence cogeneration plants will usually have a single host, with concentrated operations but also single-counterparty risk. ContourGlobal Solutions’ distributed oper­a­tions are diverse geographically, but with single-offtaker concentration.

There are few precedents for financing an operation like Solutions – the only real forerunner being the $244 million financing for DTE Energy’s acquisition of Chrysler’s utility operations in 2004, a deal led by Goldman Sachs. Those assets were merely being spun out, however, while Solutions needs to build 17 plants costing $15-20 million apiece at each bottling plant in 13 different countries.

Opic and Contour had already worked together on the $145 million loan for the Togo plant*. Solutions presented something of a challenge, since not all of the host bottling plants were located in Opic-eligible, usually developing, countries. The sponsor and Opic had to put together a collateral and construction funding mechanism that worked around Opic’s policies, not to mention the lending regimes of the 12 different host countries.

The solution essentially involves Contour funding the plants located in non-eligible countries with equity, while their cash­flows and assets count towards the credit of the portfolio, so allowing for higher leverage on the plants in Opic-eligible countries. Opic’s exposure to plants that are still under construction is limited to a construction in progress tranche of $30 million. So far, Contour has brought online plants in Northern Ireland, Romania and Italy, of which only Italy is non-eligible.

The sponsor and Opic were able to cut down on the documentation burden by creating a master template and funding checklist that could be transferred from one project to the next. The construction in progress tranche funds only when the spon­sor has met defined construction milestones and is only used to reimburse documented project expenditures. When a plant is complete, the construction in progress tranche draws convert into term debt, freeing up capacity again in the construction tranche.

The deal cuts down on time spent in documentation by not requiring lenders to obtain security over all of the assets of the individual project companies. Instead, Contour Solutions offers up a pledge of its equity in each subsidiary, and each subsidiary in turn guarantees the portfolio facility. Moreover, Opic gets control over a centralised set of project accounts that give it simple access to the portfolio’s cashflows. The single offtaker, while a source of credit concentration, does mean that the lender does not have to approve a new offtake agreement for each plant. The sponsor’s suggestion that it include plants in the port­folio that it was developing for other offtakers was not accepted, because this would have complicated the drawdown process and in­creas­ed project-level due diligence.

The host jurisdictions still create localised quirks, however. Under Romanian law a pro­ject company cannot guarantee its parent’s obligations, so the lender waived this plant’s upstream guarantee requirement. The Austrian and Ukrainian plants were allowed to provide upstream guarantees, but only if these were governed by local law. Ukraine also insists on guarantees being in its local currency, the Hryvnia, while Poland caps the amount that any Polish project company can guarantee.

Even by using advisers with expertise in more than one jurisdiction, the sponsor and lender required another eight firms to provide local advice, beyond the two lead transaction counsel, though that number includes counsel in Cypriot law, because the hold­ing company is registered in Cyprus.

Some of the more difficult markets in the Solutions portfolio have yet to see their financings, and some of them have a very limited track record in project financing at all. But Opic’s 14.5-year financing, priced at a predetermined margin over Opic’s funding costs, is a very competitive product, one that other developers should look to adapt.

The problem, as ever, is finding suitable candidates to copy the structure. US sponsors still demonstrate limited appetite for emerging market risk. A developer with an ambitious renewables portfolio using proven technology would be the most obvious candidate. But if large corporates operating in developed (or Opic-ineligible) markets decide to outsource more of their energy requirements, a commercial bank may be able to draw on Contour’s structure. 

ContourGlobal Solutions Limited
Status: Signed 10 August 2010
Size: $250 million
Location: Austria, Bulgaria, Greece, Italy, Nigeria, Northern Ireland, Poland, Romania, Russia, Serbia, Slovakia and Ukraine
Description: Portfolio financing for 17 inside-the-fence power, heat, water and CO2 plants at Coca-Cola bottling plants
Sponsor: ContourGlobal
Provider: Overseas Private Investment Corporation
Maturity: 14.5 years
Independent engineer: Sargent & Lundy
Lender’s insurance adviser:Jardine Lloyd Thompson
Borrower’s insurance adviser: Moore-McNeil
Lender legal counsel: Dewey & LeBoeuf
Sponsor legal counsel: Latham & Watkins
Local legal counsel: Norton Rose (England, Greece, Italy, Poland); Antis Triantafyllides & Sons (Cyprus); A&L Goodbody (Northern Ireland); Radu Taracila Padurari Retevoescu (Romania); Hausmaninger Kletter (Austria); Squire, Sanders & Dempsey (Russia, Slovakia, Ukraine); Stankovic & Partners (Serbia); Spasov & Bratanov (Bulgaria)

*This sentence originally, and erroneously, suggested Opic and Contour were working on the Kivuwatt project in Rwanda