mezzanine financing for wind projects mark henderson european wind energy conference 28 february...
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Mezzanine Financing for Wind ProjectsMezzanine Financing for Wind Projects
Mark Henderson
European Wind Energy Conference
28 February 2006, Athens
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InvestecInvestec
• Founded South Africa 1974
• Dual-listed in Johannesburg and London Market cap : c. €4.5 billion; Assets : €30 billion Assets under management : > €65 billion
• Acquired European Capital 2002
• Shareholder in Viridis Energy
• Mezzanine in Power sector
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What is Mezzanine Finance?What is Mezzanine Finance?
Mezzanine (n), Italian:Mezzanine (n), Italian: An intermediate level between floor and ceiling occupying a partial area of the floor space
• “A middle layer of debt – below the senior debt layer and above the equity layer…”
• “…Mezzanine finance shows characteristics of both debt and equity”.
• “There is no strict definition of mezzanine capital”
• “Mezzanine Finance” – general term to describe various financing arrangements that rank below the senior debt
high yieldConvertible exploding
Junior debt stretched seniorSubordinated debt
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Why have Mezzanine Finance? Why have Mezzanine Finance?
• Reduce equity commitments Over €5 billion new projects in
Europe alone Needs >€1billion equity every year Plus need for new development
funds
• Fills funding “gaps”: Development period 2 – 5 years per
project Periods until grants received Bank vs. Sponsor base case
Need for Project Sponsors
Sponsor Base Case
Bank Base Case
EQUITYEQUITY EQUITYEQUITY
DEBTDEBT
DEBTDEBT
To
tal
Pro
jec
t C
os
t
Covered by:Missing Funding:
Either – More Equity
Or - Mezzanine
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Why have Mezzanine Finance? Why have Mezzanine Finance?
Leverage additional cashflows Reduces equity requirement
Less project equity required Increases equity returns
Not diluting equity Maintains control
Benefits to Project Sponsors
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StructureStructure
Either Or:
Sponsor
Project Co
Mezz Lenders
Senior Lenders
Intercreditor
Sponsor
Mezz Co
ProjectCo
Mezz Lenders
Senior Lenders
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Mezzanine: CharacteristicsMezzanine: Characteristics
• Ranking behind senior in cashflow waterfall
• Second ranking security
• But ahead of equity
• May have conversion rights
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Conclusion Conclusion
• Growing need with growing wind market
• Benefits to Project Sponsors
• Flexibility in structuring But banks need flexibility in risk appetite