Financing for the first phase of the 330MW Belwind offshore wind farm in Belgium closed late last month.

The project stands apart not only as the largest project financed offshore wind farm to date, but represents the successful completion of financing despite challenging market conditions and a last-minute change in ownership.

The project brought together three banks - Dexia, Rabobank and Dutch bank ASN Bank - and the EIB with the latter providing half of the overall debt. As the multilateral bank's first offshore wind project in which it assumed project debt, the EIB's sizeable portion was a bold move.

IJ Reporter Verity Ratcliffe considers the landmark transaction including the twists and turns that finally led to financial close and what the deal means to the developing offshore wind farm industry.

The project

The first phase of the Belwind project is to have a capacity of 165MW and will be located 46km off the coast of Zeebrugge [Projects Database].

The facility uses monopole turbine structures which have been used widely in previous offshore wind farms. AC transmission lines will transport power from the project to the mainland.

The project is being built by Van Oord Marine and Offshore Contractors. Mott MacDonald is technical adviser on the project.

The financing

Project costs for the 165MW phase totals €613.9 million in a base case scenario with an additional €80 million available in contingent reserves.

PMV, Meewind, Colruyt Group and Rabo Equity together provided €124 million in base case equity and €24 million in contingency.

Three commercial banks - Dexia, Rabobank and ASN Bank - came forward as lenders on the transaction together with the EIB as lender and guarantor and Danish ECA EKF as a risk-bearing party.

Base case debt consists of:

• €150 million - provided by EIB with EIB assuming the risk
• €150 million - provided by EIB with EKF assuming the risk
• €86.5 million - provided by three commercial banks with the same banks taking the risk
• €40 million - provided by three commercial banks with EKF taking the risk

Contingent debt is as follows:

• €33.6 million with the commercial banks taking the risk
• €22.4 million with EKF assuming the risk

The structure results in the following senior debt risk allocations:

• EKF - €212.4 million (€190m base case and €22.4m contingent)
• EIB - €150 million (all base case)
• Commercial banks - €120.1 million (€86.5m base case and €33.6m contingent)

Of the €120.1 million risk assumed by the three commercial lenders, ASN Bank took €35 million risk while Dexia and Rabobank assumed €42.5 million risk each.

A further €63.4 million was arranged in mezzanine debt provided by Rabobank, Flemish bank PMV and some of the equity partners.

Tenor on the debt stands at 15 years post-completion (December 2025) and pricing is said to be around the 300-350bp mark for the term loan and 350-400bp for the contingency facilities. Mezzanine debt pricing is around 600-800bp.

Rabobank is the hedging coordinating bank, Dexia Bank Belgium is the accounts bank while Dexia Crédit Local is the security agent and facility agent for the transaction. Dexia, Rabobank and EKF earlier acted as financial advisers on Belwind.

Watson Farley & Williams was legal adviser to the sponsor and Allen & Overy acted for the lenders. Jardine Lloyd Thompson was insurance adviser.

Financing closed on 24 July 2009. Syndication is expected to follow shortly with between €100-300 million on offer and a target to bring 1-4 extra banks into the club.

A change in ownership

Financing for the project progressed at a good pace through 2008 and into the first half of 2009 in spite of tight credit markets. Then in May, when the project was thought to be within days of reaching financial close, Econcern (the parent company of Belwind's sole-sponsor evelop) filed for bankruptcy (IJ News, 27 May 2009).

Belgian utility Electrabel had already signed the PPA on Belwind and was initially expected to step in to become a major shareholder in the project. However, Electrabel opted to stay out of the financing following an ongoing dispute between the company and the Belgian government regarding nuclear storage.

Ampara was also thought to be interested in the project but one of the fund's major shareholders declared itself uncomfortable with the risk profile of the project. PMV, Meewind, Colruyt Group and Rabo Equity finally stepped in to assume ownership of the project with several key figures from Evelop involved in the development of Belwind retained.

According to EIB head of energy Christopher Knowles, a delay was inevitable as a result of these ownership changes and one of the major challenges of the transaction was keeping this delay to a minimum so as to avoid disruptions to the construction timetable. This was largely achieved with only a 1-2 month hold-up.

The financial strength of the new owners - Colruyt in particular - is thought to have assisted in keeping the financing of the project on track. Nevertheless, as the transaction relied heavily on the continued participation of each of the parties, each player could effectively wield its veto status.

According to Dexia's Jerome Guillet, this element needed to be managed to take the project to financial close. Essentially, it was this coordination problem that was one of the greatest challenges to the successful completion of financing.

The future

The first phase of the Belwind offshore wind project reached financial close despite tight credit markets, significant changes to the project's ownership and the bailout in September last year of one of its key lenders (Dexia).

Participants on the transaction point to the underlying strength of the project as the foundation for this success. No doubt the EIB's agreement to provide half of the total liquidity provided a much needed shot in the arm.

The next phase of Belwind will see a further 165MW added to the project. While the first phase is being constructed in relatively shallow waters (35 metres at the deepest), the second phase will be built in deeper waters (40-45 metres).

For this reason, Belwind 2 may well experience more technical hurdles. At present, only one other wind farm is planned to feature at a site of 40-45 metres in depth - the Beatrice wind farm to be developed by Airtricity and SeaEnergy Renewables.

Looking ahead, the next offshore wind farm to reach financial close will likely be the Global Tech I project off the German coast. Germany's Wetfeet Offshore Windenergy has approached the EIB to finance up to half of the total costs associated with its proposed 400MW wind farm (IJ News, 6 August 2009).

The project is to be built in the German Exclusive Economic Zone in the North Sea.
Project costs are anticipated to total around €1.2 billion. The following banks are thought likely to lend on the project:

• Dexia
• KfW
• Societe Generale
• LBBW

Another German wind farm - Borkum West II - is said to be back on track following many months of delays (IJ News, 11 August 2009). Sole-sponsor of the wind farm Trianel has appointed Noble Denton (part of Germanischer Lloyd) to manage the project. The wind farm was originally to be developed by Trianel in partnership with Prokon Nord before Trianel bought out its partner's stake in the project.

Banks previously engaged in talks on the project's financing are now once again involved in a dialogue. These banks are:

• HSH Nordbank
• Dexia
• KFW
• UniCredit
• Rabobank

The site for the project is located roughly 45km north of the island Borkum in the German Exclusive Economic Zone.

However, it should not be forgotten that the project financed offshore wind industry is still very much in its infancy. Q7 - now known as Princess Amalia [Projects Database] - was the first offshore wind farm to be project financed. Like Belwind, Princess Amalia was developed by Evelop and financed with debt from Dexia and Rabobank.

The two banks also worked on the Thornton Bank offshore wind farm in Belgium [Projects Database]. Mott MacDonald similarly worked on all three projects (Belwind, Q7 and Thornton Bank).

Nevertheless, the completion of financing for the first phase of the Belwind offshore wind farm bodes well for similar projects in this small but rapidly expanding sector.