Mezzanine Financing for Wind Projects Mark Henderson European Wind Energy Conference 28 February 2006, Athens
Investec 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
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 yield Convertible exploding Junior debt stretched senior Subordinated debt
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 EQUITY EQUITY DEBT DEBT Total Project Cost Covered by: Missing Funding: Either – More Equity Or - Mezzanine
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
Structure EitherOr: Sponsor Project Co Mezz Lenders Senior Lenders Intercreditor Sponsor Mezz Co ProjectCo Mezz Lenders Senior Lenders
Mezzanine: Characteristics Ranking behind senior in cashflow waterfall Second ranking security But ahead of equity May have conversion rights
Conclusion Growing need with growing wind market Benefits to Project Sponsors Flexibility in structuring But banks need flexibility in risk appetite