Panama’s Penonomé wind project: A financial advisor’s perspective
By David Casallas – Monday, April 20, 2015
President and CEO
Pan American Finance
In an interview with BNamericas, Pan American Finance president and CEO Ben Moody provides insight into the different financing aspects required to develop Panama wind project Penonomé. The interview was conducted via email.
BNamericas: What drew Pan American Finance to participate in this project?
Moody: Pan American Finance was retained by our client, InterEnergy Holdings, as its sole financial advisor on the acquisition from Unión Eólica Panameña of the US$425mn, 215MW Penonomé wind project in Panama, that was in the late stages of development, and prior to construction.
Simultaneous with the acquisition, Pan American Finance assisted InterEnergy to raise US$100mn in bridge financing from Banco Espirito Santo de Investimento; and subsequent to the acquisition, Pan American Finance assisted InterEnergy to secure US$284mn in senior secured and US$16mn in subordinated 17-year project debt financing from the International Finance Corporation and a syndicate of development banks and commercial lenders.
Pan American Finance was proud to have assisted InterEnergy in completing the largest power project and largest project financing undertaken in its 25-plus year history.
BNamericas: What doubts/worries did potential financiers have in the project?
Moody: The long-term lenders, led by the IFC, focused on four key risks: Goldwind’s direct drive turbine technology (this was the first international financing by development banks for this wind turbine technology), the wind resource in Panama (this is the largest wind project in Panama and in Central America), the interface risks among the commercial contracts (there was no wrapped EPC contract; InterEnergy managed the sequencing between turbine supply, transportation, and civil works contracts), and the debt service coverage given the project’s power supply agreements (PPAs for 165MW for 15 and 20 years, and 50MW on a merchant basis).
BNamericas: What conditions did lenders require before committing funds?
Moody: Strong sponsor support, including a project contingency.
BNamericas: Were there differences between private lenders and multilaterals such as development banks in how they approached the project, for example risk?
Moody: There are clear differences: most notably, the development banks will provide longer tenor financing (up to 17-18 years) than commercial bank lenders (more comfortable at 10-12 years, and in any case not more than 15 years); in addition, development banks will selectively provide mezzanine debt at the project level, to enhance the amount of project contingency; the combination of longer tenor and higher amount of debt financing mobilized by the development banks was sufficient to make this a viable project for InterEnergy.
BNamericas: What lessons were learned from the financing process?
Moody: Key lessons learned were: the need for a majority of revenues to the project to be under long-term contracts, to provide comfort for debt service coverage; to expect differences of opinion (perhaps significant differences) between owner’s and lender’s consultants regarding the wind resource; the need to plan for and provide sufficient time to arrange and complete long term project financing from development banks (in this case, eight months from mandate in April 2104 to disbursement in December 2014).
BNamericas: What other energy projects/where else in the region is the company helping structure financing?
Moody: Pan American Finance is acting as financial advisor on the acquisition and long-term project financing for a number of solar and other renewable and thermal energy projects in the region, including in Chile, Colombia, and Panama.
BNamericas: Any financing trends we should be aware of?
Moody: There are three trends of note: little appetite for financing merchant projects, including for solar and wind; increasing requirement for a significant portion of project financing to be swapped into fixed rate; after some years of little or no activity, growing interest from international project financing banks (European, Asian, and US) to consider lending to power and renewable energy projects in the Central and Latin American region.
Need help? Feel free to contact BNamericas Customer Service Center
Tel: +56 (2) 2232 0302
Fax: +56 (2) 2232 9376
Voice/Fax: +1 (305) 513 5782 (USA)