Canadian wind projects usually require much less complicated financing structures than their counterparts in the US. The provinces of Quebec, British Columbia and, until recently, Ontario, are characterised by 20-year power purchase agreements with well- rated state-owned offtakers. Without any of the tax structuring that complicates US financings, Canadian deals are comparatively easy for the bank or private placement market to close.

It took a large project, which came to market during a difficult period for banks, to produce a truly complex financing. The Seigneurie de Beaupré 2&3 project in Quebec, sponsored by Boralex, Gaz Metro and Valener, lacked any Canadian commercial bank involvement. But it combined foreign banks, Quebecois government financing, pension fund lenders, and a German export finance component.

The deal suggests that there are some institutions ready to make up some of the gap that departing European lenders will create, though the remaining international lenders will hope that the market does not go the way of Canadian PPP, which now offers slim pickings for foreigners. It also highlights the continued push that export credit agencies are making into developed markets renewables.

German support for exports of turbines, like any export financing, comes with minimum content requirements, longer approval times, and documentation standards that may be alien to commercial lenders. But Quebec’s attractive 20-year PPAs also come with local content requirements, and demands on a project sponsor that may conflict with the interests of lenders. Seigneurie de Beaupré is a creative effort to find new debt sources, but also a delicate balance between the interests of these sources, along with those of sponsors and offtaker.

The C$725 million ($729 million), construction-plus-18-year debt financing breaks down into a C$301.396 million uncovered construction to term loan, C$260 million Euler Hermes-covered construction to term loan, a C$28.75 million standby letter of credit to cope with Euro/C$ currency fluctuations, an C$83.359 million letter of credit facility, and a C$51.639 million bridge loan that finances construction of a substation for the offtaker, and which will be repaid with the proceeds of a payment by the offtaker.

The mandated lead arrangers of the debt are Bank of Tokyo- Mitsubishi UFJ (administrative agent and documentation bank), KfW IPEX-Bank (Hermes agent and documentation bank), Deutsche Bank (documentation bank), Sumitomo Mitsui Banking Corporation, Landesbank Baden-Wurttemberg, Mizuho Corporate Bank and Siemens Financial Services. All lenders participated in the uncovered construction-to-term loan and letter of credit, while all bar Siemens participated in the standby debt and uncovered construction to term debt, and KfW, BTMU and Deutsche provided the bridge.

The group of lenders is a mixture of German banks (KfW, Deutsche, L-Bank) and Japanese banks (BTMU, Mizuho, SMBC), one captive finance institution lending to a project using third-party turbines (Siemens), and a Quebecois government-linked lender (La Caisse). Given the project’s debt size, the leads brought in a number of unnamed institutional lenders to top up the financing, with the presence of Hermes providing comfort to debt providers with limited familiarity with wind risk.

The project is located in the municipality of Côte-de-Beaupré, 60km from Quebec City, in an area with few inhabitants but a proven wind resource. Quebec is blessed with hydro capacity in abundance, so much so that it is a major exporter, but wind gives it a chance to diversify its fuel mix. The provincial government, which retains control of the electricity sector, is only prepared to offer desirable power purchase agreements to developers that will spur the creation of a local manufacturing base. It awarded the project a 20-year PPA with Hydro-Québec Distribution in May 2008.

Enercon, which is supplying the 271.8MW project with 126 of its E82 and E70 turbines, is carrying out enough assembly in Germany and Quebec to satisfy both governments, and is also the operations and maintenance contractor. The financing needed to be structured to include a cross-currency hedge, to cope with fluctuations in the Euro/Canadian dollar exchange rate.

Boralex, a Canadian-listed developer, owns 50% of Seigneurie de Beaupré Wind Farms 2 and 3 General Partnership, the special purpose vehicle for the two phases, while Beaupré Éole General Partnership, in turn a 50/50 joint venture of Gaz Metro and Valener, owns the rest. Valener, a publicly-listed company, owns a 29% stake in Gaz Metro, which distributes gas in Quebec and, increasingly, the US. Boralex has already developed several wind and biomass plants, though SdP is its largest wind farm to date, and one of the largest to come to market in North America in 2011.

Despite the scramble in the second half of 2011 to rope in non- bank sources of financing, pricing stayed close to recent market lows, despite the increasing dislocations in debt markets. The Euler-covered piece, for instance, is understood to have priced at roughly 150bp over Libor. The financing is probably the largest ECA financing ever for a North American renewables project, and is unlikely to be the last.

Seigneurie de Beaupré Wind Farms 2 and 3 General Partnership
STATUS: Signed 4 November 2011
SIZE: C$850 million
DESCRIPTION: Financing for two phases of a 271.8MW wind farm located in Québec
SPONSORS: Boralex (50%), Gaz Metro (25%), Valener
DEBT: C$725 million
MANDATED LEAD ARRANGERS: Bank of Tokyo-Mitsubishi UFJ, Deutsche Bank, KfW, L-Bank, SMBC, Mizuho Corporate Bank, Siemens Financial Services, Caisse de Dépot
ECA: Euler Hermes
FINANCIAL ADVISER: BNP Paribas
LENDER LEGAL COUNSEL: Blakes Cassels & Graydon
SPONSOR LEGAL COUNSEL: McCarthy Tetrault
INDEPENDENT ENGINEERS: SAIC; DNV
INSURANCE ADVISER: Moore-McNeil
WIND RESOURCE CONSULTANT: GL Garrad Hassan