The Oaxaca plants offered US dollar-denominated revenues from a powerful wind resource. The Mexican state-owned utility, the Comisión Federal de Electricidad, is paying the project company in US dollars under 20-year power purchase agreements. US investors, accordingly, were the dominant players in the debt, buying 89% of the notes across both issues. European investors were second, at 7%.

Three weeks before Acciona’s Mexican subsidiary Acciona Energia México (also the engineering, procurement and construction contractor) closed the issues, bookrunners BBVA, BNP Paribas, Crédit Agricole, Santander and Société Générale launched roadshows throughout the US, as well as in London and Mexico City. The four were looking for 19.5-year maturities on $164.5 million of debt for Oaxaca II and the $167 million for Oaxaca IV. They hoped to price the bonds for all-in yields of 6.5%.

Pricing inched up, but not beyond the sponsor’s tolerances. The rise was unsurprising, given investors’ varying familiarity with wind assets and the limited number of precedents, US or foreign, in the US capital markets. Participating insurance companies in the Oaxaca issues largely understood the assets as banks do, and used a similar due diligence process, say market observers, but did not account for the majority of buyers. Pension funds (a group that includes both foreign funds and Mexican afores) bought 61% of the two issues, followed by life insurance companies at 27%, hedge funds at 10% and banks at 2%.

Acciona ultimately accepted all-in yields of 7.25% on the issues, which prompted the sponsors to slightly reduce them to maintain initial credit ratings of BBB-. Oaxaca II ultimately closed a $148.5 million refinancing, while Oaxaca IV got a touch more – $150.2 million. The Oaxaca deals closed roughly five months after Abengoa and GE pulled a planned $600 million issue for their 300MW Nuevo Pemex plant in Mexico, in the face of higher-than-expected pricing.

The bonds refinance a corporate construction loan of just under $200 million – essentially a bridge facility – that had closed about 18 months earlier, and in which BBVA, BNP, Crédit Agricole, Santander and SG participated. The construction debt is split between $136.6 million for Oaxaca IV and $122.5 million for Oaxaca II. The bonds also fund final payments on the plants’ EPC contracts ($69.9 million on Oaxaca IV and $85 million on Oaxaca II) and fund a debt service reserve with $7.8 million

At the time the original deal closed, Acciona hadn’t settled on an eventual bond refinancing, and was also looking at a long-term bank deal. As the corporate loan neared maturity, however, Acciona indicated that it wanted to test the capital markets. European banks struggled to offer tenors that could rival 19.5 years.

Bankers anticipate that the Oaxaca bonds will be the first of several wind deals to hit the US market. But Acciona was a good candidate to close a first deal. It has an international reach and international banking relationships, and is probably the most accomplished wind developer in Mexico.

The Oaxaca II and IV projects are located in one of the world’s most robust wind resources – the narrow Isthmus of Tehuantepec that separates the Pacific Ocean and Gulf of Mexico. Oaxaca projects boast an average capacity factor of 47%, higher than the 36% is Tehachapi, California, where Terra-Gen Power closed a lease bond financing for its Alta wind farms in 2010. According to Acciona, Oaxaca IV, which has been formally operational since March 2012, has had a capacity factor of 50.3%. Oaxaca II came online in February 2012. Oaxaca II and IV are projected to have a 96% turbine availability for the first 15 years of their turbines’ life, according to Fitch.

Observers have measured Oaxaca’s wind speed at 10-11 meters per second, notes Astra Castillo, Fitch director in Mexico City, compared to 8.5-9 meters per second at the average wind farm globally. Still, the body of data for the Oaxaca area is limited to 10 years. Indeed, the Mexican renewables market is fairly young: The country’s first commercial wind project only came online in 2009. Mexico now has roughly 860MW of installed wind capacity – 15MW more than the Shepherds Flat wind project in eastern Oregon. But more than 30 wind farms are operational or under construction in the Oaxaca area.

The Oaxaca II refinancing has a projected minimum debt service coverage ratio of 1.40x and an average of 1.41x, according to Standard & Poor’s. It will include a six-month debt service reserve fund and a six-month operations & maintenance reserve, and 40% of the debt will amortise in the final five years of the notes’ life. For the Oaxaca IV bonds, the DSCR is expected to average 1.35X, with a minimum of 1.33x, according to Fitch. Oaxaca IV also will have a back-ended amortisation, with more than 40% of the debt to be repaid in the final five years of the bond’s life.

CFE is paying $65 per MWh to Oaxaca II in 2012, which will increase annually before reaching $112 per MWh in 2031, the year the PPA ends and the bonds mature. The Oaxaca IV PPA starts at $63 per MWh in 2012, increasing annually to $109 per MWh in 2031. 

CE Oaxaca Dos, S de RL de CV and CE Oaxaca Cuatro, S de RL de CV
STATUS
Priced 8 August 2012;
Placed 10 August 2012
SIZE
$148.5 million (Oaxaca II) and $150.2 million (Oaxaca IV)
DESCRIPTION
Bonds refinancings for two 102MW wind farms in Oaxaca, Mexico, that out a $250 million corporate bridge facility
SPONSOR
Acciona Energia México
BOOKRUNNERS
BBVA, BNP Paribas, Crédit Agricole, Santander and Société Générale
LEGAL ADVISER TO THE ISSUER
Mayer Brown
LEGAL ADVISER TO THE BOOKRUNNERS
White & Case and Gibson, Dunn & Crutcher