'It is a great art to sell wind,' Confucius said. He was wrong. Actually, selling wind - or wind power, at least - is quite easy. Deals are getting bigger, pricing more competitive - Renomar's latest was, by any standards, a whopper

The second biggest wind deal to date saw a gaggle of big project finance banks flocking for a piece of the action. On 31 July, nine of them closed a €806 million senior debt to fund 400MW of wind power in Spain's Comunidad Valencia.

Not all of the 23 projects are surefire winners, however. While work on the first of them began in 2005 and some are already up and running, wind speeds across the region are patchy. Some farms may under-perform or even never be built, a factor reflected in the debt-equity ratio, if not so much in the pricing.

Background

Comunidad Valencia authorities two years ago passed legislation dividing the region into ten licensing areas, of which Renomar (Energías Renovables Mediterráneas) scooped five. Spanish utility Endesa grabbed the next highest total with three and in 2005 closed financing for 300MW of generating capacity.

'This is the biggest financing of its type in a long time and a lot of major banks wanted to be involved,' Gabriel Saro from the RBS Madrid office told IJ. 

Debt is distributed equally among nine lenders, who are:

• BBVA
• Banesto
• Banco de Sabadell
• Banco Santander Central Hispano (BSCH)
• Caja Madrid
• Calyon
• RBS
• Société Générale
• Banco de Valencia

Banesto was the facility agent. All were joint MLAs, with the exception the smaller Banco de Valencia. BV wore two hats, acting as both local agent and one of the sponsors - The bank holds a 26 per cent stake in MedWind, which in turn holds a 50 per cent stake in Renomar. Spanish wind giant Acciona has the other half.

Banco de Valencia kicked off the lending early in the process with the provision of a €60 million bridge loan as construction got underway. This was followed by a new bridge loan of €405 million in which all of the eventual MLAs were involved, splitting €320 million eight ways, with Banco de Valencia stumping up the remaining €85 million.

This larger bridge loan agreement was signed on 1 March 2006 and was repaid with the first drawdown of the term loan agreement, which was taken on 31 July.

The transaction

Debt-equity for the financing is 80:20, with the sponsors contributing a minimum equity stake of 10 per cent and the remaining 10 per cent to be financed through revenues as the windmills start turning.

'This reflects the best case scenario,' says Saro. 'Senior debt is fixed at 80 per cent and the sponsors would have to make up any shortfall in revenue. This is unlikely, however, as revenue projections are fairly strong.' 

While debt equity of 90:10 is not uncommon for onshore wind, the lower gearing reflects the variable quality among the 23 projects.

'The number of wind farms provides a significant level of risk - there is a range of productivity,' says Pablo Maudes from Calyon's Madrid team. 'Some wind farms will run at less than 2000 hours per year.'

Pricing has been fixed at 50bp during construction, on the back of guarantees furnished by Renomar's biggest stakeholders - Acciona and Banco de Valencia.

After commissioning, pricing will be between 70bp and 90bp - most likely around the 80bp mark. The senior debt has a tenor of 18 years. An additional €36.2m revolving VAT facility is priced a 60bp and has a tenor of two years.

Syndication on the project is expected in September.

Garrigues was legal counsel to the lenders, while Renomar took advice in-house. Garrad Hassan is the technical advisor.

The project at a glance