Brazil’s wind resources, like those in many other parts of Latin America, usually put resources in more developed markets to shame. But developers struggle to find fast, competitive debt financing, as well as achieve the leverage their backers often require. In Brazil, commercial banks, even when they find it easy to compete on speed with state-owned lenders, cannot compete on price or tenor.

The holding company financing for SIIF Energies do Brasil, a portfolio of wind pro­jects located in Ceara state, demon­strates that sponsors can find increased leverage and commercial banks can make them­selves useful in the country’s wind sector. In 2010, several Latin American countries saw debut wind project financings, usually with the assistance of export credit agencies and development finance institutions. The SIIF deal takes the state of the art in regional wind finance one step further.

The financing covers four projects: 54MW Icaraizinho, 105MW Praia For­mosa, 25.2MW Foz do Rio Choro and 25.2MW Paracuru. All four are now oper­ational, and benefit from 20-year power purchase agreements under Brazil’s PROINFA programme, the country’s earli­est limited stab at encouraging the de­vel­opment of renewable generating capacity.

SIIF was once a subsidiary of EDF, which sold what was then a development pipeline to Aeolus, a Portuguese developer, in 2005. Aeolus in turn sold the portfolio to Citi, through Citicorp Mercantil Parti­ci­pações e Investimentos; Black River, through Black River CEI Subsidiary 3 and Liberty Mutual Insurance Company in 2008. At one point AES, looking to com­plement its hydroelectric generating and power distribution businesses in Brazil, provided SIIF with a Eu110 million convertible loan.

SIIF turned to a variety of other sources of debt to fund the development of the portfolio, which first won the PROINFA contracts in 2004. It closed R150 million in bridge and mezzanine financing in 2007 with Standard Bank, which was advising it on the project financing of the portfolio, and Liberty Mutual also provided SIIF with a bridge loan.

In 2009, the developer closed a series of project level financings with Banco do Nordeste and Superintendência de Desenvolvimento do Nordeste (SUDENE), both state-owned development lenders. The project-level debt is believed to be competitive with that on offer from BNDES, the national development bank, which typically prices its debt at 225bp over the TJLP. It funded over 2009 and into early 2010, and broke down into R201.8 million for Icaraizinho, R78.9 million for Foz do Rio Choro, R80.3 million for Paracuru and R338.4 million for Formosa.

The developer wanted to refinance the bridge and convertible debt, and in April 2010 mandated Banco Santander and Banco Votorantim as arrangers of a R400 million holding company loan. There was no real precedent for this type of financing, which required lenders to work out what the cash available for debt service would be after the two development lenders were sated.

The portfolio uses locally-assembled Suzlon S88 2.1MW turbines, and should benefit from the proximity of Suzlon’s operational base in Fortalez, also in Ceara state. Suzlon turbines lack the track record of some of the more established brands, but Suzlon has a long enough and deep enough presence in Brazil to be eligible under the country’s local content requirements for PROINFA contracts and low-cost debt.

The loan from Santander and Votorantim has a 96-month tenor and has a scheduled amortization of 60% at maturity, though a cash sweep is likely to bring the average life of the debt to slightly below the stated 8-year tenor. This cash sweep kicks in for surplus cash generated above the P90 case. The debt is repayable semi-annually and priced at 550bp over the CDI money-market lending benchmark, and attracted a participation from Caixa Geral.

Even though the portfolio financing was the first time in Brazil that lenders had been asked to perform due diligence on an operational wind farm, the structure was untested, and the turbines new to lenders, the non-recourse holding com­pany debt closed a mere two months after the mandate was signed. The loan allow­ed the sponsor to increase its leverage on the project without resorting to the cur­rency mismatch that might have resulted from using dollar debt, which might also have been available.

The SIIF deal has wider application in the country’s wind industry, especially as strategic and financial developers build up more substantial portfolios, manufacturers get more traction, and lenders become more comfortable with Brazilian wind’s risk profile. But the unique nature of SIIF’s shareholders, and the quality of the early PROINFA contracts, limit the ease with which the deal can be copied. Strategic sponsors are again looking at opportunities in the Brazilian market, but many of them will find it easier to borrow at the corporate level to fund the portion of projects’ capital costs not covered by development lenders.

And bidding is getting much more com­petitive. Sponsors bidding on the last round of wind power purchase agreements in Brazil are believed to have promised capacity factors of as much as 50%, com­pared to the 30-40% factors that many US projects can achieve. These projects will be much more demanding of lenders’ due diligence processes, even if they can achieve savings on locally-produced equipment.

SIIF Energies do Brasil LTDA
Status: Signed 10 June 2010
Size: R1.35 billion
Location: Ceara, Brazil
Description: Holding company financing for 210MW wind portfolio with Proinfa contracts
Sponsors: Citi, Black River Asset Management and Liberty Mutual
Debt: R400 million subordinated facility, complementing previously-closed R626 million in government-provided project debt
Lenders: Banco Votorantim, Banco Santander
Financial adviser: Citigroup (holdco)
Technical adviser to the lenders: Garrad Hassan
Market consultant: Excelência Energética
Legal adviser to the lenders: Souza Cescon Barrieu & Flesch
Legal adviser to the borrower: Pinheiro Neto Advogados