With one of the longest tenors on a debt facility for a US wind farm since the Lehman Brothers collapse, financial close of the Cedro Hill wind project in Texas was a watershed for renewables project financing in the States.

Sponsor Edison Mission Wind closed a US$160.6 million debt package for the 150MW Cedro Hill project in March. This included US$135.3 million term loan is fully amortising over a tenor of construction plus 15 years.

Keep it Short

While tenors of 15 to 18 years have remained relatively commonplace for European renewables project financings over the past two years, they completely disappeared from deals being done in the US after the banking collapse precipitated by Lehman Brothers' demise in September 2008.

As banks stopped lending to each other the number of renewables schemes being project finance fell dramatically. In both Europe and the US, lenders upped their fees and the price of debt across the board.

However, on tenor there was a marked difference in banks' attitudes in the two markets - in Europe, while some banks pulled back to only committing to miniperm facilities between five and eight years in tenor, others were happy to offer longer tenors due to the attractive incentive schemes on offer.

In the US, meanwhile, projects were only able to make it away with miniperms or one or two-year bridge facilities.

When US President Barack Obama's stimulus bill was passed in February 2009 to become the American Recovery and Reinvestment Act, it contained a number of provisions to encourage investment in renewable energy projects.

However, while this legislation undoubtedly helped increase the deal flow in the US, it seemingly made little impact on the tenors being offered by lenders to US renewables schemes.

In the run up to Cedro Hill's close in March several major US wind projects, including the Alta Wind I [Projects Database] , Keenan II [Projects Database] and Lost Creek [Projects Database] schemes, were all financed using 7-year miniperms.

Alongside these, the bulk of other financings over the six months prior to Cedro Hill's close were short-term refis or bridge facilities, such as the two and a half year Terra-Gen portfolio refi [Projects Database].

Going Long

More than a year after Obama's signing of the American Recovery and Reinvestment Act, Cedro Hill was the first renewable project financing in the US to return to tenors seen prior to the banking collapse.

The project is a 150MW scheme comprising 100 GE 1.5xle turbines and will sell all of its output under a 20-year, fixed-priced power purchase agreement (PPA) to CPS Energy, the utility of the City of San Antonio, Texas [Projects Database].

It was debt financed by four MLAs - BBVA, Dexia, Santander, and Union Bank - each taking tickets of US$40.15 million split across three tranches. These tranches and their tenors are as follows:

• US$135.3 million construction plus 15-year term loan
• Two US$21.2 million operative letters of credit for 7 years
• US$4.1 million 7-year revolving working capital facility

Legal adviser to the sponsor was Gibson Dunn, while Milbank, Tweed, Hadley & McCloy acted as lenders' counsel.

Pricing on the term loan is LIBOR plus 300bps for the project's one-year construction period and the first three years of operation. It then steps up by 12.5bps every two years to reach LIBOR plus 350bps for years 12 and 13, and then jumps to LIBOR plus 375bps for the final two years.

This pricing was broadly in line with that seen on the Alta Wind, Keenan II  and Lost Creek financings, all Greenfield onshore wind farms with generating capacities similar to Cedro Hill's 150MW.

Like Cedro Hill, all three also have 20-year PPAs in place, yet they only secured seven-year minperms with bullet payments and significant refinancing risk.

What made Cedro Hill different was that it could secure a debt facility that was fully amortising over its 15 year tenor, thereby avoiding any refinancing risk in what it still a far from settled market?

The answer is a combination of the strength of its sponsor and the project's debt to equity ratio.

The Cedro Hill Wind SPV is 100 per cent owned by Edison Mission Energy, the IPP subsidiary of California-based major US utility Edison Mission Group.

In contrast, Alta Wind is sponsored by renewables developer Terra-Gen Power and Lost Creek by mid-west developer Wind Capital.

Keenan II does have a sponsor to match Edison's might, with GE Financial Services holding a 63 per cent stake in the SPV.

However, GE and co-sponsor Competitive Power Venture's equity commitments to Keen II pale in to insignificance when compared to that of Edison on Cedro Hill: Keenan II was US$318.9 million financing comprising US$89.9 million in equity and US$229.9 million in debt, a debt to equity ratio of 72:28. Likewise Alta Wind and Lost Creek had debt to equity ratios of 83:17 and 69:31 respectively.

On Cedro Hill, by contrast , Edison's equity commitment was US$213.4 million against a US$135.3 million debt package - a debt to equity ratio of 43:57.

Edison will recoup some of its sizeable equity commitment from the US Federal cash grant that reimburses 30 per cent of the project cost once it is operational. Rather than take out a bridge loan to be repaid by the cash grant - as happened on Alta Wind I and Keenan II - Edison is opting to use the grant to reimburse some of its equity outlay on the scheme.

Nonetheless, the combination of debt forming the minority of the financing, a strong sponsor and a 20-year PPA was fundamental to Cedro Hill achieving a 15 year tenor.

The Long Goodbye

Given its unique combination of criteria that made banks so comfortable with lending to Cedro Hill over a long tenor, one could be forgiven for thinking that its financial close on 10 March might be a false dawn for long-tenor renewables project financings in the US.

However, while some Greenfield financings have continued down the miniperm route, such as the Solar Power Partners 8.9MW PV Portfolio [Projects Database] and the 49.9MW Hudson Ranch Power I geothermal scheme [Projects Database], a substantial number of financings and refis that made it away after Cedro Hill have secured tenors of between 10 and 25 years.

These projects, and their tenors, include:

• Duke Energy Wind Portfolio Refinancing [Projects Database] - 15 years
• 90MW Vantage Windfarm [Projects Database] - 11.5 years
• Blue Wing 14MW PV Plant [Projects Database] - 25 years
• 100.5MW Beech Ridge wind farm [Projects Database] - 10 years
• Acquisition of 101.5MW South Trent Wind Farm [Projects Database] - 10 years

With several of these long tenors coming on the safer-bets of refinancing operational assets, it may be premature to say the US market is back to its pre-Lehman Brothers appetite for long-term lending.

However, Cedro Hill does now look like it was the turning point, and that the days of every single US renewables project being forced to take refinancing risk are well behind us.

The project at a glance