FEATURE SPONSOR
DEBT FINANCING OF ONSHORE WIND PROJECTS
When financing onshore wind farms, lenders need confidence that the project is both practically and economically viable. This requires the lender to examine carefully the legal, commercial and technical aspects of the project, often with a more cautious approach to risk than that of the developer/investor.
This due diligence exercise for the project intends to ensure that the contractual arrangements reflect the commercial terms approved by the lender’s credit committee, who are responsible for assessing the credit standing of the lender. The lender will also require that the project company and third party contractors/consultants appropriately allocate risk and that the lender is
satisfied that each project participant is sufficiently experienced and resourced; namely, that the project
documents and participants are bankable.
KEY FINANCE DOCUMENT The facility agreement is the key finance
Typically, loans to finance renewable projects are made on a non-recourse basis. These loans are serviced from cash generated by the project, with the lender having security over the project assets via a special purpose company. The lenders’ recourse will be to that company, but not beyond.
document. It will set out the commercial terms of the funding, as well as the lender’s ongoing requirements around visibility on project construction and operation. The financial/commercial and legal conditions that attach to the availability of the funding are also included.
LEGAL EAGLES
The lender’s legal advisor will prepare a suite of security documents to cover all of the borrower’s assets. That security will extend into the key project documents by requiring the counterparty to those contracts to also enter into a direct agreement. This gives the lender a right to step-in to should the borrower default in its obligations.
The facility agreement imposes a number of minimum financial requirements on the project. The Lender will also set out a specific regime around the flow and application of project revenues. These form part of the control of distribution of funds from the project to its investors.
The project company is required to set aside funds as a buffer to any short term loss of revenue and to finance future debt service and maintenance costs should short term revenue be insufficient to meet these requirements.
DUAL CONSIDERATION
Given the maturity of the onshore wind market in England and Wales, Scotland and Northern Ireland, there is now much that can be done to anticipate a lender’s requirements and deal with many of these points from the outset. The key to a smooth debt finance process is to ensure that the project is assembled not just with a developer’s hat on, but also with consideration of the lender’s requirements.
Gary Roscoe TLT Solicitors
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