PF Archive

Balance sheets to the wind

19 11 2008

The £326.5 million ($480 million) Fred Olsen wind portfolio financing has just signed – and while any European wind deal closing in the current lending climate is good news, the terms of the deal are much harsher than wind developers have been used to. The key changes are not just on debt pricing – margin ratchets from 150bp to 195bp and fees have been upped to 130bp. More significant is that any bank on the 18.5 year loan has an option to call for full repayment in year 12 and although the structure is intended to be added to with new projects in the future, the banks can opt out of funding new assets or sharing security with those assets. As the credit crunch ups the cost of project finance debt by as much as 125%, many small wind developers are struggling to finance projects, prompting some to cancel or delay them. And things are set to worsen in 2009 when and estimated 10%-20% of the sector's planned capacity expansion could be derailed. As cash-strapped developers scramble to fund projects, they are expected to sell wind-farm stakes to the major utilities – this is not new, but more of them may start selling up pre-operation: For example, troubled Babcock & Brown is looking to sell its undeveloped 102MW Arganil wind farm (part of the Enersis portfolio) to Caixa Capital having failed to get a debt financing via Dexia, BBVA and BPI off the ground. The funding squeeze is also likely to mean the development...