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Prepared by the Project Finance & Reserve Based Lending, Rail & Aviation TeamEMEA Loan Distribution, Debt Optimisation and Distribution

3rd Annual European Renewable Energy Project Finance

Contact DetailsLiam O’Keeffe liam.o’[email protected]

Koo Cho [email protected] Walker [email protected]

Stephanie Pariot [email protected] Tan [email protected]

Arnaud Hannir [email protected]

3rd Annual European Renewable Energy Project Finance 20 14Page 1

1. Global Loan Market Overview

2. Global Project Finance Overview

3. Project Finance in EMEA

4. Pricing & Liquidity in EMEA

5. New Investors in Renewable Energy Projects

Contents

3rd Annual European Renewable Energy Project Finance 20 14

Global Loan Market Overview � SECTION ONE


Global Loan market activity is almost fully recover ed from the Eurozone crisis… Global Loan Market Overview

0

100

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800

900

1,000

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1,500

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100

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900

1,000

1,100

1,200

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1,500

1,600

Q104

Q204

Q304

Q404

Q105

Q205

Q305

Q405

Q106

Q206

Q306

Q406

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Q212

Q312

Q412

Q113

Q213

Q313

Q413

US$ billion

Global Loan Volume

Americas Asia Pacific EMEA Global Moving Average (12 months) Global Moving Average (6 months)

Source: Dealogic


The primary use of loans in FY2013 was for refinanc ing… Global Loan Market Overview


Almost 80% of loan maturities were up to 5 years bu t only 2% were over 9 years…

Global Loan Market Overview


Margins for PF deals are trending down faster than for corporates…Global Loan Market Overview

2Q 12: Sharp increase due to certain high priced deals such as Parque Eolico El Arrayan 325 bps, Tarahumara Pipeline 350 bps, Sabine Pass LNG 425 bps, Bhopal Dhule Txn Co 450 bps

1Q 13: Includes certain high priced deals e.g. Empresa Municipal De Aguas De Huelva 425 bps, Phu Bia Mining 350 bps, La Mancha Resources 325 bps, AfriSam 400 bps, Sembmarine Kakinada 467 bps, EMG Utica 375 bps, Adani Maharashtra 440 bps, Transmisora Baquedano 380 bps

3Q 13 includes certain high priced deals e.g. PT Medco E&P Tomori Sulawesi 500 bps, Panda/Moxie Liberty 650 bps, Vantage Pipeline Canada 300 bps

Note:


EUR, GBP, USD short term liquidity costs have conve rged and returned close to pre-crunch levels…

Global Loan Market Overview

3M LIBOR-OIS spreads traces the recent developments in wholesale funding indicators

OIS: Overnight Indexed Swap (OIS rates = Fed Funds Effective rates or EONIA (Euro Overnight Index Swap) or SONIA (Sterling Overnight Indexed Swap))3M LIBOR-OIS spreads are an important measure of risk and liquidity in the money market


Global Project Finance Market Overview� SECTION TWO


Global Project Finance Market OverviewGlobal PF loan activity appears to have recovered s lightly in FY2013 while PF bond activity has risen sharply…


Global Project Finance Market OverviewQ4 13 global PF loan volume was up compared with Q3 13 but down compared with Q4 12…


Global Project Finance Market OverviewSuggesting future growth may be set for a lower tra jectory…


Global Project Finance Market OverviewMeanwhile, changes in global PF loan activity appea r to be tracking the rest of the loan market…


Global Project Finance Market OverviewThe number of active MLAs in EMEA has increased sig nificantly from 144 in 2012 to 180, up 25% for 2013 ...


Global Project Finance Market OverviewIn FY 2013, EMEA was the largest market for PF loan s overtaking Asia…


Global Project Finance Market OverviewAlthough PF loan market volumes in Asia-Pacific reb ounded in 4Q 13, the trend is still down…


Global Project Finance Market OverviewMeanwhile, activity in the Americas continues to tr end upwards…


Project Finance in EMEA� SECTION THREE


Project Finance in EMEAIn EMEA, PF loan activity now appears to be slowly recovering after the falls triggered by the Eurozone Crisis…


Project Finance in EMEAPF loan activity in EMEA also mirrors activity in t he wider EMEA loan markets…


Project Finance in EMEAW. Europe remains the dominant market in EMEA but a ctivity in the Middle East has more than doubled…

W. Europe54.5%

CEE, FSU, Russia & Other Europe

17.6%

Middle East8.2%

Africa19.7%

Total EMEA Transaction Volume 2012: US$ 67.9 billio n

Source: PFI


Project Finance in EMEARenewable Energy projects accounted for almost half of all power related activity in 2013…

Source: Dealogic


Project Finance in EMEAIn FY2013, the market was dominated by the GCC and Japanese banks with Chinese banks (CDB & BoC) making an unexpected and significant impact…


Project Finance in EMEAIn FY2013, the top 10 banks accounted for 38.7% of volume and the top 50 for 79.7% ...


Project Finance in EMEAIn FY2013, the average deal size reached the highest level since 2008 due mainly to several jumbo* tran sactions…

*Jumbo deals e.g. Asia Trans Gas (Uzbekistan), Beineu-Shymkent Gas (Kazakhstan), Asia Gas Pipeline (Kazakhstan), Sadara Chemical (Saudi Arabia), Thameslink (UK), BreBreMi Toll Road (Italy), Brussels Airport Refinancing (Belgium), Gebze-Orhangazi-Izmir Highway (Turkey)


Pricing & Liquidity in EMEA � SECTION FOUR


Pricing & Liquidity in EMEAPF margins have trended down but with a c.110-210bp s premium to investment grade corporate margins…

0255075

100125150175200225250275300325350375400425450475500525550575600625650675700

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2007 2008 2009 2010 2011 2012 2013

Margin (bps)

Global Corporate and PF Margin Trend

EMEA- As EMEA - BBBs EMEA - Sub IG EMEA - PF

Source: Dealogic

1H 13 includes certain high priced deals e.g. Empresa Municipal De AguasDe Huelva 425 bps, AfriSam 400 bps, Saur Energie Cote d‘Ivoire 375 bps

110bps

100bps


Pricing, Liquidity & Investors in EMEAEuropean PPP pricing stabilised over the last 9 mon ths and is now trending down…


Pricing & Liquidity in EMEAJapanese banks still enjoy a potential c.40-75bps f unding cost advantage over WE banks…

Santander BBVA

BarclaysRBSLloydsHSBCBNPPSGCA-CIBNatixisCommerzbankDBBayernLBIntesa SanpaoloUnicreditSantander BBVABTMUMizuhoSMBC

Intesa SanpaoloUnicredit


Pricing & Liquidity in EMEABut funding costs are converging for the stronger E uropean banks…


New Investors in Renewable Energy Projects� SECTION FIVE


� Loans● Representing c. 80% of the global debt market;

● Mainly provided by banks, with European and Japanese banks the main players;

● But some non-banks have been or are becoming active such as industrials, insurers, asset managers & pension funds;

● This is the most flexible and liquid debt product in spite of current problems in the financial markets.

� Bonds (project being long dated, single asset, gree nfield vs. infrastructure being utilities, airports or large single asset, brownfield)● In recent years bonds have only accounted for barely c. 15% of the debt market although in FY 2013 this rose to c.19%;

● The disappearance of the monoline insurers was a major setback at the start of the credit crunch as wrapped bonds achieved AAA based on underlying BBB- to A- ratings but Assured Guaranty (rated AA-) is still active and able to wrap bonds up to c£100M;

● European investors typically required a minimum A- rating for PF bonds as opposed to infrastructure bonds being in the BBB range but are lowering their standards due to the excess liquidity in the bond markets;

● Investors also tend to avoid construction risk although a strong contractor wrapping the risk can push the rating to A- but again risk appetite is growing;

● There is appetite from US investors for greenfield projects with weak investment grade ratings outside of the US – c.$500M – now being joined by the more adventurous European investors;

● New initiatives have been launched by EIB (successfully launched €1.4bn bond for Castor in July 2013 & Gabbard OFTO), Hadrian’s Wall (although initially supported by Aviva, DBJ & EIB has now been abandoned), PEBBLE (ING) & Commute (NIBC) for smaller projects (Zaanstad Prison project in the Netherlands successfully financed) to make PF bonds more appealing to investors through credit enhancement.

� Private Placement● A recent development has been private placement;

● Provided on a bilateral basis by institutional investors mainly for brownfield projects, with proven cash flows;

● Metlife provided £200m in a private placement of floating rate senior secured guaranteed notes and 21 year maturity to ABP in 2012;

● Prudential M&G provided a £100M bilateral term loan facility for 6-8 years to Drax in 2012 & £100M 30 year loan with EIB on Alder Hey hospital plus a £12M sub debt facility, SMBC is account bank but not a lender;

● USS acquired a £100M senior, 25 year, index linked, loan note for SE Water and a £95M senior, 20 year, index linked, loan note for Affinity Water.

The PF Debt ProductsNew Investors in Renewable Energy Projects


In 2013, PF bonds were issued mainly in the America s (31.6%)New Investors in Renewable Energy Projects

Source: PFI Source: PFI

PF Bonds by RegionPF Bonds by Sector


� Forth Ports in UK:● $275M 10 year tranche priced at 210bps over treasuries, a £60M 10 year tranche priced at 285bps over gilts & a £35M 18 year tranche at 187bps over LIBOR

● £350 5 year bank facility pricing at 150 rising to 200bps in Dec. 2013 (Source: PFI).

� Heathrow Airport in UK:● £750M fixed rate class A bonds maturing 2046

● Rated A- by Fitch

● Priced at 5.42 per cent in October 2013 (Source: PFI).

� Mersin International Port in Turkey: ● $450M unsecured 1441A bond maturing 2020

● Rated BBB- by Fitch & Baa3 by Moody’s

● Priced at 5.875%, 383.4bps over US Treasury

● The issue was supported by a significant contribution from the EBRD in August (Source: IJ).

� University of Hertfordshire student accommodation p roject in UK:● £190M inflation linked bond maturing 2034

● Rated A- by S & P

● Priced at 235bps over UK inflation linked gilts dated 2035, May 2013

● Sold to Legal & General (Sources: IJ & Infranews).

� Shuweihat 2 IWPP in Abu Dhabi● $825 24 year amortising bonds

● Rated A3/A- by Moody’s and S & P

● Priced at 246bps over mid-swaps (Source: PFI).

� Vier Gas Transport (Open Grid Europe) gas transmissi on in Germany: ● €750M 10 year bonds,

● Rated A- by S & P

● Priced at mid swaps +113bps, July 2013 (12 year bonds priced at mid swaps +104bps in June 2013) (Source: IFR).

� Brussels Airport:● €500M bond maturing 2020 & €1bn maturing 2018

● Rated BBB/Baa1

● Priced at mid-swaps plus 160bp on the 7 year vs150bp on the 5 year, June 2013 (Source: PFI).

Some examples of recent bond issues in EMEANew Investors in Renewable Energy Projects


� Gabbard OFTO● £305.4M 19 year bond

● Rated A3 by Moody’s, a 1 notch uplift as the project benefits from first loss protection up to 15% provided by EIB through an L/C

● Priced at 4.137%, 125bps over gilts, Dec. 2013 (Source: PFI).

� Manchester Social Housing PFI project● £74M 24 year bond wrapped by Assured Guaranty

● Rated AA- by S & P and A2 by Moody’s with underlying project ratings of BBB- and Baa3

● Priced at 4.926%, equivalent to 190bps over gilt, Dec. 2013 (Source: Assured Guaranty press release).

� Zaanstad Penitentiary Prison project in the Netherla nds● €195M bond offering split into senior “A notes” and credit enhancing [PEBBLE] “B loan” tranches in September

● A notes were c€127M and a tenor of c25 years vs B loan of €45M and a tenor of 7 years

● Ratings not available, Oct. 2013 (Source: IJ).

� Edinburgh University (Holyrood) student accommodati on project in UK:● £31M fixed rate bonds & £32M index-linked, maturing 2048

● Rated AA- by S & P benefitting from a monoline wrap provided by Assured Guaranty

● Priced at 5.533 per cent (215 basis points above gilts) million for the fixed rate bonds and at 1.9713 per cent (190 basis points above gilts) for the index linked bonds in July 2013 (Source: IJ).

� Castor gas storage project in Spain: ● €1.4bn amortising bond maturing 2034

● Rated BBB+ by Fitch benefiting from €200M support line provided by EIB

● Priced at 5.756%, 100bps over Spanish sovereign, July 2013 (Source: IJ).

While credit enhancement for PF bonds is being succ essfully rolled out in a variety of ways…

New Investors in Renewable Energy Projects


� Existing & core banks● Banks had generally become more selective on sponsors, sectors, geographies;

● Prioritising key relationships;

● With a preference for shorter tenors (< 20 years but ready to make exceptions for key clients & if bond or advisory mandates);

● And mini-perm structures (hard & soft) to encourage early refinancing;

● But Japanese, German & other European banks can still do very long tenors (up to 30 years).

� Returning banks● ABN.Amro – focused primarily on Benelux;

● AIB in the UK & Ireland only for tenors up to 10 years;

● GCC banks have benefitted from increased USD liquidity in the region due in part to the relatively high price of oil;

● North American banks linked to ancillary business (eg. RBL and commodities, BoA-ML, JP Morgan, RBC & Scotia Capital) as well as relationship deals such as Gemini offshore wind (Bank of Montreal, CIBC & EDC);

● Smaller Japanese banks (eg Aozora, DBJ, Mitsubishi Trust, Norinchukin, Shinsei & SMTB).

� New banks● Chinese Development Bank ranked no.1 in EMEA for FY2013 while Bank of China ranked no.50 (participating in Thameslink,

Rabbigh IPP & Ust-Luga Terminal) & ICBC is applying for branch status in the UK;

● Smaller banks attracted by niche sectors such as renewable energy (eg ASN, Triodos.)

� Non-bank investors● Industrial players such as GE, Caterpillar & Siemens;

● Historically, very few institutional investors were active, preferring to invest in bonds, PGGM & Prudential Capital/M&G werethe exception;

● But many new players are gearing up including asset managers, insurers and pension funds;

● Preference for fixed rate or index linked, strong investment grade (A- or better) given tenor and potential Solvency II constraints;

● Now looking at loans as unable to achieve yields in bond markets and to diversify risk;

● A number of infrastructure debt funds are being set up mainly for European investors but some Australian and US funds are already active.

The loan investor mix is changing… New Investors in Renewable Energy Projects


� L2 Rocade, Marseille (October 2013):● French PPP project to provide the financing for the 11km L2 motorway in Marseille

● Main sponsors : CDC Infrastructure, Meridiam Infrastructure

● C. €84m c.30 years amortising loan

● Margins: c.170 – 225bps

● Lenders included CA-CIB, SG

� Thameslink (June 2013):● UK PPP project to provide new rolling for London under a 25 year concession

● Main sponsor: Siemens

● c.£1.1bn 22 year loan


● 19 Lenders including German, Japanese, and others such as Bank of China, Barclays, CA-CIB, CBA, CIC, DBJ, ING, Lloyds & SBS (Sources: IJ , PFI& Inspiratia).

� A1 – A6 (February 2013): ● Design, build, finance and maintain road project in the Netherlands

● c.€7-800M c.27 years amortising loan

● Main sponsors: DIF, Hochtief, Boscalis & Volker Wessels


● Lenders included CA-CIB, Helaba, KfW-Ipex, LLBW, NordLB & Unicredit (Sources: IJ, Inspiratia & PFI).

� IEP (July 2012):● UK PPP project to provide new rolling stock for the intercity rail services

● Sponsors: Hitachi & John Laing Investments

● £2.1bn 29.5 year amortising loan of which c.£900M provided by commercial lenders

● Margins: 250 - 350bps

● Lenders included: HSBC (advisor), Lloyds, BTMU, Mizuho, SMBC, Sumitomo Trust, Mitsubishi Trust & DBJ (Sources: Inspiratia & Infranews).

But bank appetite for long term lending is returnin g…New Investors in Renewable Energy Projects


37About 50 banks are active in financing renewable en ergy in EMEA…

Analysis of Banks Active in Renewable Energy in EME A

19%

14%

12%

19%

14%

7%

5%

10%

Germany

Benelux

France

Iberian

UK

Japanese

Scandinavian

Other

New Investors in Renewable Energy Projects


� How many?● c.22 investors, including:

» 3 industrial investors;

» c.7 UK based asset managers;

» c.6 European based asset managers;

» c.6 Australian/US infrastructure debt funds & asset managers.

� Risk?● Weak investment grade;

● Institutional investors have very limited appetite for construction risk with preference for brownfield but may accept limited expansion;

● Proven technology & operational track record;

● Most forms of renewable energy generation including biomass, onshore wind and solar but no offshore wind.

� Geography/currency?● Mainly focused on core Western Europe;● With preference for Euros for European investors & GBP for UK investors.

� Amount?● Minimum €10-15M up to €75M, but some can do significantly more.

� Tenor?● Many institutional investors have a sweet spot in 8-12 year range;

● But some can go to 30+ years.

� Loan structure?● Term loans;● Some may be able to accommodate limited drawdowns to fund construction.

� Pricing?● Target RoA > 225bps subject to risk profile but some flexibility to follow market.

What do non-bank investors want?New Investors in Renewable Energy Projects


� How much?● c.50 banks + c.20 non-bank investors active in renewable energy;

● Tickets: €25-75M (some banks could do larger tickets of €100M – eg. Japanese banks) & institutional €10-75M;

● Potential of up to €350 – 2,625M (70 banks/institutional * €10-75M * 50%);

� Any constraints?● Only c.20+ banks will consider offshore wind, so far no non-bank investors interested;● Non-bank investors have very limited appetite for construction risk.

� How long?● Up to 15-18 years should be achievable;

● Many non-bank investors have a sweet spot in 8-12 year range but some can go to 30+ years;

● Minimum DSCR >1.20.

� Pricing?● Fees: c150-200 bps (+50 bps for underwriting), non-bank investors less focused on fees;

● Margins: starting at c.200+ bps and rising to c.300+ bps at maturity;

● +50 bps to offshore wind, +25bps Ireland, +50-100bps for Italy/Spain.

� Underwriting● Sponsor preference for club deals as cheaper but can be time consuming;

● But bank appetite for underwriting is growing;

● As growing number of smaller banks and institutional investors looking to buy renewable energy loans;

● €150 – 200M+ or more for high profile transactions;

● Toul-Rosieres, Massangis & Coriance all in France.

What is the impact on terms & conditions:New Investors in Renewable Energy Projects


Project Finance & Reserve Based Lending, Rail & Avi ationContact Details

Karen TANAssociateProject Finance & Reserve Based Lending, Rail & AviationEMEA Loan DistributionDebt Optimisation and Distribution

Broadwalk House, 5 Appold Street, London EC2A 2DATel: +44 20 7214 7146 Fax: +44 20 7214 5335Mobile: +44 (0)7825 011 938e-mail: [email protected]

Koo CHOExecutive Director Project Finance & Reserve Based Lending, Rail & AviationEMEA Loan DistributionDebt Optimisation and Distribution


Liam O’KEEFFEManaging DirectorHead of Project Finance & RBL, Rail & AviationEMEA Loan DistributionDebt Optimisation and Distribution

Broadwalk House, 5 Appold Street, London EC2A 2DATel: +44 20 7214 7065 Fax: +44 20 7214 5335Mobile: +44 (0)7899 060 136e-mail: liam.o’[email protected]

Toby WALKERExecutive Director Project Finance & Reserve Based Lending, Rail & AviationEMEA Loan Distribution Debt Optimisation and Distribution

Broadwalk House, 5 Appold Street, London EC2A 2DATel: +44 20 7214 7178 Fax: +44 20 7214 5335Mobile: +44 (0)778 99 44 855e-mail: [email protected]

Stephanie PARIOTAssociateProject Finance & Reserve Based Lending, Rail & AviationEMEA Loan DistributionDebt Optimisation and Distribution


Arnaud HANNIRAnalystProject Finance & Reserve Based Lending, Rail & AviationEMEA Loan DistributionDebt Optimisation and Distribution

Broadwalk House, 5 Appold Street, London EC2A 2DATel: +44 20 7214 7022 Fax: +44 20 7214 5335

e-mail: [email protected]


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