Just shy of its fourth birthday, the global investment group Babcock & Brown Wind Partners (BBW) - a renewable focused subsidiary of its parent company Babcock & Brown - has bundled together 1,678MW of its global wind energy assets and refinanced them in a transaction worth €1.03 billion (US$1.4bn)

The deal has effectively restructured and releveraged the group's international assets with four MLAs - covering interests in 35 projects on three continents, five countries and nine wind regions.

BBW's Global Wind Portfolio

BBW was established in June 2003 and has grown from a single asset private investment vehicle to a listed fund with a healthy portfolio of wind farms - diversified by geography, currency, equipment, supplier, customer and regulatory regime.

The firm draws on Babcock & Brown's nearly 20 years of financing expertise and experience in the global wind industry and currently operates as a stapled security listed on the Australian Stock Exchange.

BBW's portfolio includes wind farms operational or under construction in Europe, North America, and the Asia Pacific.

Additionally, the fund has framework agreements in place to feed it a pipeline of future opportunities under development in Spain and Germany.

American Assets

The bulk of BBW's global wind assets are located in North America. The company's US portfolio consists of at least sixteen individual wind farms across five wind regions with totalled installed capacity of over 1,000MW.

The US projects include:

• Bear Creek, Pennsylvania
• Blue Canyon, Oklahoma
• Caprock, New Mexico
• Combine Hills, Oregon
• Crescent Ridge, Illinois
• Jersey Atlantic, Pennsylvania
• Kumeyaay, California
• Sweetwater, Phase1, Texas
• Sweetwater, Phase2, Texas
• Sweetwater, Phase3, Texas
• US06 Portfolio

BBW's US06 portfolio includes:

• Buena Vista, California
• Aragonne, New Mexico
• Mendota, Illinois
• Allegheny Ridge Phase I
• Allegheny Ridge Phase II
• GSG

BBW is among the four largest wind energy participants in the US market. The firm's acquisition of the Crescent Ridge wind farm is described by the company as a significant milestone marking its entry into the lucrative PJM market and adjacent service territories.

PJM covers more than 13 states and has more than 21 million customers. BBW's Jersey Atlantic wind farm, Mendota and GSG wind farms are all located in the PJM market.

BBW's US holdings are set to grow with its US07 portfolio. It includes the acquisition of 100 per cent of Babcock & Brown's interests in the Class B interests in three US wind farm projects - subject to security holder and other relevant approvals.

BBW says it is well placed to benefit from the positive market dynamics in the US, such as the extension of the PTC system, the existence and growth of state based RPS programs, a relatively favourable administrative environment and good access to grid connections.

European Assets

In Europe, BBW currently has wind farms spread across Germany, France and Spain.

These include:

• Eifel (Germany)
• Bocholt Liedern (Germany)
• Wachtendonk (Germany)
• Kaarst (Germany)
• Olivo portfolio (Spain)
• Monte Siexo (Spain)
• Serra do Cando (Spain)
• Fruges I & II (France)

Fruges I & II are located in the north west of France - close to the English Channel - and are the firm's first French wind investments. These wind farms are currently under construction and, once completed - in the second half of 2007 and the first half of 2008, respectively - will have a combined total installed capacity of 52MW.

BBW said Spain remains a very attractive market and it will continue to consider opportunities in the country.

The Eifel wind farms in Germany were acquired in 2006 and are not part any framework agreements.

Framework Agreements

In 2006, BBW entered into a framework agreement with Germany's Plambeck Neue Energien (Plambeck).

The Australian wind group secured the rights to acquire a portfolio of 30 wind farms comprising potentially up to about 300MW over the next three years. In January, BBW said it had agreed to acquire the 10MW Kaarst wind farm - the first under this agreement.

BBW has advanced €6 million to Plambeck on execution of the agreement which is secured against projects to be delivered by the turnkey developers.

BBW also has a framework agreement in place with Babcock & Brown's UK subsidiary - acquiring certain rights and obligations in relation to the acquisition of wind farms in Spain. These correspond to rights and obligations which the UK group has with Gamesa Energía. The agreement contemplates that wind farms with installed capacity of up to 450MW in aggregate of power could be available over the next two years.

Asia & Pacific Assets

BBW currently has three projects in its Australian portfolio::

• Lake Bonney 1
• Lake Bonney 2
• Alinta

These wind farms benefit from Australia's MRET scheme, which provides for the sale of environmental credits in the form of a Renewable Energy Certificate (REC).

Revenue assurance for Lake Bonney 1 is secured via a single off-take agreement for all electricity and RECs for 10 years. Alinta has deals whereby all electricity is sold under a 20-year agreement and RECs for 10 years.

BBW says it has a mix of long term PPAs and market sales arrangements in place for its Australian projects.

Financing led by four MLAs

The €1.03 billion (US$1.4bn) refinancing of BBW's global portfolio was arranged by a group of four international banks.

The corporate project finance facility - including both operational & under construction and remaining US06 assets - was underwritten by:

• Bank of Scotland
• Dexia
• Espirito Santo Investment
• Millennium bcp

The refinancing combines the Australian firm's project, asset and corporate level debt across multiple jurisdictions into a single facility.

The debt - which has a multi-currency structure - is divided into five tranches:

• €752.5 million term loan
• €237 million construction facility
• €12.8 million in working capital
• €14.6 million VAT facility
• €13.8 million letter of credit and guarantee

Bank of Scotland is the agent bank and takes on the role of security trustee. All four banks will act as joint bookrunners and were advised by Freshfields Bruckhaus Deringer with regional assistance from Allens Arthur Robinson (Australia) and Bonn Schmitt Steichen (Luxembourg). Clifford Chance - with assistance from Mallesons Stephen Jacques (Australia) and Milbank (US) - acted for the sponsor.

BBW said the new multi-currency structure will have a single borrower for each region - Australia, Europe and the US. Syndication is planned in June with the banks likely to employ different strategies for each of the different regions.

Pricing was described as competitive for a diverse global portfolio encompassing several different regulatory regimes and tariff schemes. The projects diversity provided the banks attractive risk mitigation - highlighting what BBW chief executive Miles George referred to as 'the credit strength' of the company's portfolio.

'The facility will achieve savings from a funding perspective and enable [us] to continue to participate effectively in the growing wind energy market,' he said.

Subject to lenders' approvals at the time of each new investment, the facilities can be resized as acquisitions are completed on an ongoing basis. As the wind portfolio continues to change, BBW said it would likely refinance its debt every two to three years.

Conclusion

The cross-collateralisation of wind assets has quickly become an attractive strategy for investors looking for stable cash flow and cheaper funding. The banks like it too because the risk is spread and well diversified.

Last summer, nine banks closed the €806 million Renomar Valencia portfolio in Spain - which at the time was the second largest wind deal to date.

In December, Renomar was eclipsed by the €1.13 billion Trinergy portfolio which covers wind assets in Italy and Germany.

BBW's refinance elevates cross-collateralisation to a new level - taking it global with different currencies and different regulatory regimes to consider.

However, for all of its complexity, the deal remains fairly straight forward. The banks have a stable borrower which actively manages its wind assets and the sponsor gets attractively priced funding.

So why are the deals getting bigger?

To quote James Carville, 'it's the economy stupid' - or in this case economies of scale. The wind industry is maturing and the stable cash flows from projects mean bigger is definitely better.

The project at a glance