Atlas Renewable Energy financed a pair of solar projects in Chile in the US private placement market at the beginning of March, skillfully winning over a skeptical investor community that lacked positive experiences of financing renewables in the country.
The $253 million deal won praise from onlookers for the favorable terms Atlas was able to secure, especially at a time when social unrest in Chile was undermining investor confidence.
The success of the deal was attributed in large part to the non-utility offtake arrangements of the two underlying projects, since corporate power purchase agreements are shielded from the measures taken by the government in response to the protests, such as the power price freeze.
The deal was also the largest green US private placement to be issued by a Latin American borrower.
"We are very proud of this unique financial solution, tailor-made for these projects in order to enhance investment value," said Carlos Barrera, CEO of Atlas Renewable Energy, in a statement.
The groundwork for the deal started in January 2019 when Atlas reached out to banks regarding what turned out to be a highly sought-after mandate.
The sponsor, which is the Latin American renewable energy portfolio company of British private equity firm Actis, was seeking proposals to finance an under-construction solar project and refinance an operating project simultaneously.
The under-construction project was the 244MW (DC) Sol del Desierto project, the operating asset was the 69.5MW (DC) Javiera Solar project.
Norway's DNB Markets won the mandate in September 2019 and launched a marketing process for the deal.
Atlas had worked with DNB on private placements before - in 2018 the Norwegian bank acted as the sole placement agent on a $108 million refi for two solar projects the sponsor owns in Uruguay.
This time around, however, it was not all plain sailing, as the placement agent at first struggled to find institutional investors with an appetite for projects in Chile. The deal was initially expected to close by the end of 2019, but December came and went without an announcement.
One market participant suggested that US private placement investors' limited and less-than-reassuring experience lending to renewable energy projects in Chile was a significant headwind for the deal.
Back in 2017, Latin American Power (LAP) had issued a $412 million 15.5-year bond to refinance two wind farms in Chile—the 185MW San Juan and 46MW Totoral projects.
Investors swooped on the deal, which was rated BBB- by S&P Global Ratings.
Unlike the Atlas projects, however, the San Juan and Totoral projects had 15-year PPAs with local distribution companies, also known as discos.
In Chile, PPAs with discos can be problematic because projects typically have to supply a variable output at a fixed price. If the discos' demand falls, the sponsors must sell the surplus power into the spot market.
The aggressive structure of the LAP deal was "too optimistic" about how robust the demand from the discos would be, says a deal watcher.
Soon, the projects were selling part of their output spot, at lower-than-expected prices, and by September 2019, S&P was threatening to downgrade the bonds if spot prices kept declining. The power price freeze, in response to the recent protests, only made things worse.
"For many investors, LAP was their first deal in Chile," says a deal watcher in New York. "When the deal turned out to be a disaster, many were scared. Their first experience had been terrible."
Representatives of LAP in Santiago did not respond to a request for comment.
Investors' memories of the LAP deal were not the only hurdle for Atlas to overcome. By November, the protests that had broken out in Chile were reducing investor appetite for all kinds of deals in the country.
In December, after the offering had come to a halt, DNB altered the structure of the deal, reducing the amount of leverage to make the transaction more attractive to those investors that were still interested in Chile.
Three investors finally agreed to buy the bonds, allowing the $253 million deal to close on 3 March 2020.
Allianz Global Investors provided the largest ticket. The identities of the other two investors could not be learned.
The final structure involved two tranches of bonds:
- a $138.9 million tranche due on 30 June 2035
- a $114.1 million tranche due on 31 December 2036
The disbursement is expected to take place the week of 23 March.
Law firm Allen & Overy advised the lenders, with White & Case providing legal advice to the sponsor.
Willis Towers Watson was insurance adviser to the lenders.
Fitch Ratings rated the bonds BBB-.
The under-construction project, Sol del Desierto, is located in the municipality of Maria Elena, Antofagasta, and has a 15-year PPA with Engie Energía Chile, signed in August of last year.
Spain's Prodiel is the EPC contractor for the project, with a $181 million contract to bring it online by September 2021.
China's LONGi is providing bifacial panels.
The EPC contract is supported by a letter of credit from BBVA, while an LOC from Bank of China guarantees the module agreement.
The operational project, Javiera, is located in Chañaral, Atacama, and has a 20-year PPA with Antofagasta Minerals to power the Minera Los Pelambres copper mine in the Coquimbo region.
Javiera is fitted with Trina Solar panels and has been online since 2015.
It was originally developed by SunEdison, which originally financed it with a $130 million debt package from CorpBanca and BBVA in 2014 and sold a 40% stake to Energía Andina, a joint venture between Antofagasta Minerals and Australian power supplier Origin Energy.
SunEdison filed for bankruptcy in April 2016 and Actis acquired 1.5GW of the developer's solar assets in Latin America in February 2017, establishing the Atlas Renewables platform in the process.
Shortly afterward, Atlas acquired Energía Andina's 40% stake in the project, in a transaction that closed on 12 May 2017.
(A version of this story first appeared on Power, Finance & Risk)