Thursday, 17 January 2019

Americas Awards

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RBC led a diverse group of innovative transactions in the Americas in 2017, including Fort McMurray West Transmission and First Nations East Tank Farm, that could set a precedent on financing structures for complex, large, and critical assets.

Bank of the Year – RBC

RBC led a diverse group of innovative transactions in the Americas in 2017, including Fort McMurray West Transmission and First Nations East Tank Farm, that could set a precedent on financing structures for complex, large, and critical assets.

RBC Capital Markets acted as the sole bookrunner and lead agent on the Fort Hills East Tank Farm project, demonstrating partnership between indigenous groups and industry in terms of financing. The deal represented the largest business investment to-date by a First Nation entity in Canada as well as the first bond offering in Canada by an entity solely-owned by First Nations.

First Nations ETF, comprising aboriginal groups Fort McKay First Nation and Mikisew Cree First Nation, issued C$545m (US$424.9m) of 4.1% senior secured notes due 2041 to back its acquisition of a 49% stake in the East Tank Farm bitumen project in Alberta. The notes mature in 2041. The transaction was more than three times oversubscribed and priced inside initial guidance. In spite of the partial interest acquisition, more than 100% debt financing was achieved.

The bank worked with the Alberta Electric System Operator (AESO) for four years to structure what would ultimately become Fort McMurray, the first project to be awarded in the AESO’s mew competitive transmission procurement process. It was also the first P3 for transmission, backed by availability payments. The work culminated when RBC and CIBC acted as lead underwriters on a C$1.38bn (US$1.08bn) four-tranche bond offering.

RBC acted as lead placement agent on private placement notes and joint lead arranger on credit facilities to support Engie North America and Axium Infrastructure on a U$1.16bn 50-year public-private partnership with Ohio State University (OSU). The transaction is the largest energy system privatisation by a US university.

In renewables, RBC was engaged as sole bookrunner on a C$260m (US$202.8m) bond offering for TransAlta’s Kent Hills project, the largest wind generation facility in New Brunswick, Canada. The transaction structure included a number of enhancements to address the unique expansion and maintenance requirements of the project and the unrated offering was narrowly marketed to a group of institutional investors.

RBC was also one of four banks that provided nearly a third of the C$5.5bn (US$4.16bn) credit for Kinder Morgan’s Trans Mountain pipeline expansion project. Other key mandates in the loan space included Alterra Power’s 200MW Flat Top Wind.

North American Power Deal of the Year – AES Southland

The financing backing the AES Southland Repowering Project pulled together a number of elements and rode a number of trends to give up the most attractive power financing in the world’s biggest project finance market in 2017.

The project is a wholly owned indirect subsidiary of AES and the 100% owner of four distinct power generation facilities totalling 1,394MW, which together make up the AES Southland Repowering Project. The deal features both bank and bond tranches, allowing the sponsor to secure about US$2.5bn in total funds, with good pricing and tenors that complemented each other and worked together to optimise repayments.

The deal involves a US$521m term loan with a tenor of 10 years, a letter of credit for US$300m with a tenor of 10 years, and a standby letter of credit for US$277m and a tenor of three years. These tranches were priced at Libor plus 175 basis points. The company landed a total of US$1.09bn in the bank market. The US$1.475bn of private placement bonds were priced at 215bp over Treasuries with a 2.3% quoted yield and 4.5% coupon. The bonds have a 22.7-year life and 17.1-year average life, maturing in 2040.

The sponsor and the coordinating lead arrangers used a hybrid financing structure of bank loans and 4(a)(2) private placement notes in order to achieve the large target debt raising in a cost-effective approach. At US$1.475bn, this was the largest project finance bond issue executed in the 4(a)(2) private placement format.

The debt includes 7.25-year fully-amortising floating term loan tranche and a 19.75-year fixed-rate bond tranche that fully amortises in years 7.25–19.75, after the term loan has fully amortised. The robust cashflows are provided by the 20-year power purchase agreement with Southern California Edison.

The transaction was extremely well received due to the strong fundamentals and credit structure. The notes drew nearly US$3bn in total bids, allowing for the tranche to be upsized and the pricing to be tightened. The bank facilities received US$1.6bn in commitments from the CLAs and joint lead arrangers alone.

The financing was led by MUFG as administrative agent, JP Morgan, and Citigroup. Other banks on the deal include BNP Paribas, ING and HSBC, which joined as arrangers. Commonwealth Bank of Australia, Credit Industriel Commercial, DZ Bank, Siemens Financial Services, and Zions Bancorp also took tickets in the deal. Norton Rose Fulbright represented the lenders, while Latham & Watkins acted for the sponsor.

North American Renewables Deal of the Year – sPower Wind & Solar

The renewables financing market was in turmoil in 2017 as it faced the unknown implications of tax reform. Despite the uncertainty, sPower priced the first-ever broadly distributed back-leverage private placement financing on nine distinct tax equity partnerships.

The financing backs a portfolio of 41 utility-scale solar and wind projects with a capacity of 565MW. Proceeds were used to refinance existing loans, leverage unencumbered assets, pay swap breakage, and make a one-time distribution to the sponsor. The US$421.4m bond financing followed the equity sale of sPower to AES and Canada’s investment fund manager Alberta Investment Management Corp for US$853m in cash. Citi acted as joint M&A adviser.

The deal refinanced sPower’s US$300m medium-tenor bank loans with private placement notes on 50% of its operating portfolio. The back-leverage notes take cashflows through the maturity of all power purchase agreements (PPAs) with no tail, a balloon sized to contracted cashflows beyond year 19.1, some solar renewable energy credit (SREC) and merchant revenue, and production uplift from the “portfolio effect” for both solar and wind projects.

The portfolio also allowed the company to fully leverage 140MW of wind assets through to 20 years, which is commensurate with PPA maturities, despite target internal rate of return (IRR)-driven step-ups in cash sweeps and cashflow blackouts in downside scenarios.

Citi acted as ratings adviser, structuring agent, and lead placement agent. The bank educated the private placement market on multiple renewables-based tax equity structures, opening the market to future issuances that offer permanent financing for assets with long-term offtake agreements versus medium-term bank solutions that have been traditionally offered as financing for assets financed with tax equity.

The bonds were priced at 210bp over the benchmark for a 4.55% coupon and will mature in 2036 with an 11-year weighted average life. The deal represented sPower’s debut in the debt capital markets and achieved a rating of BBB–. The order book was oversubscribed at 1.7x, peaking at US$811m.

Skadden acted as investors counsel, Latham & Watkins acted as issuer counsel, and CohnReznick was financial adviser.

P3 Deal of the Year – Fort McMurray West Transmission

The Fort McMurray West 500kV transmission project in Alberta is notable as the first transmission line procured via the P3 process. The financing backing the project turned out to be the largest P3 bond transaction in Canadian history, at C$1.38bn, slightly topping the June 2011 Centre Hospitalier de l’Universite de Montreal (CHUM), which came in at C$1.37bn.

The Alberta Electric System Operator (AESO) was mandated by the Government of Alberta to develop a competitive bid process for the opportunity to design, build, finance, own, operate, maintain and restore the project. Canadian Utilities Ltd, a subsidiary of ATCO Group, and Quanta Capital Solutions, formed Alberta PowerLine Ltd Partnership and ultimately won the first project to be awarded in the competitive process. The consortium submitted a US$1.43bn bid and will earn fixed monthly payments for 35 years after construction is complete.

Once the project is in service Alberta PowerLine will receive availability payments from AESO covering operating, maintenance and rehabilitation costs, debt service and equity returns, with the payments only subject to deductions for unavailability or non-performance. RBC and CIBC acted as lead underwriters. RBC also acted as financial adviser and was engaged on the mandate for four years.

A C$1.38bn (US$1.08bn) four-tranche bond deal was prepared to create greater pricing tension and overall reduce the cost of financing. The offering included a Series A tranche sized at C$534.4m and due in 2053, Series B sized at C$534.4m and due in 2054, and Series C and D sized at C$146.5m and due in September and June 2032. The Series A, B, C, and D bonds were priced at 155bp, 155bp, 123bp, and 123bp over the Canadian benchmark, respectively. Moody’s rated the deal A2. Series A and B were more than three times oversubscribed and Series B and C were able to be placed early. Pricing was on the tight end of the guidance range.

The ultimate debt/equity financing structure was priced and put into place after completion of a unique and comprehensive funding competition process undertaken in the last few months of the project development agreement period involving the consortium, the AESO, and RBC as financial adviser.

Norton Rose Fulbright acted as counsel to the AESO, Bennett Jones was counsel for Alberta Powerline & ATCO, Faskens acted for Quanta, and Torys represented the funders. KPMG was AESO’s adviser, Altus acted as technical adviser, Intech was insurance adviser, and BDO was model auditor.

Transportation Deal of the Year – New Mexico City Airport

Grupo Aeroportuario de la Ciudad de México (GACM) has been forging ahead in debt markets as it looks to fund the new Mexico City International Airport (NAICM), which is set to be the largest infrastructure undertaking in the region in the coming years. This year, the group was able to sell the largest Green bond offering ever, via a dual-tranche US$4bn issue. The deal allowed GACM to improve its maturity profile by fully substituting a syndicated bank loan facility with long-term bonds while funding construction.

The issue attracted around 750 investors from Asia, Europe, the US, and Latin America. The deal features a 10-year US$1bn tranche priced at 3.875% and a US$3bn 30-year tranche priced at 5.5%.

The transaction, which effectively finalised the US$6bn debt portion of the funding requirements to complete the new airport and marked the last opportunity for investors to purchase the notes for the main port of entry to the largest metropolis of the Western hemisphere, represented several milestones for NAICM, Mexico and the Latin American region.

The deal was the largest US dollar-denominated airport bond transaction and largest airport related bond transaction in the Western Hemisphere on record. It was also the largest 30-year corporate individual tranche bond issuance in Latin America and emerging markets, and the largest Green bond issue to-date, globally.

Citigroup, HSBC and JP Morgan are global coordinators, while BBVA, Credit Agricole, Inbursa, MUFG, Santander, and Scotiabank are coming in as joint bookrunners for the debt issues. The issue is not public debt. The notes are backed by a securitisation of passenger fees collected at Mexico City’s currently operating Benito Juarez International as well as future fees collected at the new airport.

Financing for the airport is coming from a variety of sources, with the overall figure needed around US$11bn. These notes complete another stage of financing for the facility, which has so far included a US$1bn term loan in 2014 and a further US$3bn credit facility in 2015 as well as US$2bn of Green bonds from 2016.

The team moved forward with this transaction looking to take advantage of a highly receptive issuance window, sustained by a favourable macro backdrop, resilient global growth, a neutral to dovish monetary policy outlook instigating stability in rates and an overall positive tone in risk markets, including a solid bid for emerging market high yielders underpinning a long duration call by several investors.

Prior to launching the transaction, NAICM diligently executed an extensive two-week marketing agenda, with investor meetings in strategic investment hubs throughout Asia, Europe, North America, and Mexico.

Latin American Power Deal of the Year – Norte III

Against a backdrop of energy reform, a sale process, a changing IPP regime, and issues with a bridge loan, the sponsorship group of Macquarie and Techint were able to close Latin America’s premiere power project financing this year.

The transaction relates to the greenfield acquisition financing by Macquarie Capital and Techint of the 915MW Norte III CCGT in Juarez, Mexico from Abengoa and their bridge lenders. The deal consists of US$716m in debt comprising a five-year US$675m term loan and a five-year US$41m letter of credit facility to support obligations under the tolling agreement and debt service obligations. There is also a US$152m equity tranche.

This project is the last one to be financed under the old Comision Federal de Electricidad (CFE) IPP regime, before the market switches to market-based contracts for difference. The financing was raised in the midst of the Abengoa bankruptcy proceedings and this allowed the sponsors to salvage the project and the contract with state-run electricity company CFE, which direly needs the power in the northern part on the country.

The project structure included the assumption by Techint as EPC contractor of the works already carried out by Abengoa as EPC contractor. The financing was oversubscribed by about 25% despite the Abengoa issues. The financing included a brand-new feature in the documentation that allowed lenders to convert – post-closing – a portion of their five-year term loan into a 12-year term loan and another option to convert this new 12-year term loan into a 12-year fixed-rate tranche, in order to deal with refinancing risk.

SMBC and Natixis served as coordinating lead arrangers; Bancomext, Crédit Agricole, GE, EDC, Norinchukin Bank, KDB, KfW, and Intesa Sanpaolo served as mandated lead arrangers on the transaction. The structure allowed for some recovery to the five lenders of the US$200m bridge loan, which committed to the financing when Abengoa was the sponsor. They were SMBC, Bancomext, Credit Agricole, KfW and Banco Santander.

The lender group engaged Carl Marks Advisors to help sell Abengoa’s stake in the facility in August 2016, after Abengoa failed to pay back the bridge loan. Paul Hastings, Mijares Angoitia, and Cortés y Fuentes advised the lenders. Milbank Tweed Hadley & McCloy and Gonzalez Calvillo advised the sponsors.

Latin American Bond Deal of the Year – Stoneway Capital Corporation

Argentina hadn’t closed a project finance deal in about two decades before Stoneway Capital Corporation provided the country with a bellwether deal early in 2017. The company went on to raise a little under a billion dollars overall and the initial US$500m bond transaction stood out among deals in Latin America, with the speed of execution and its trailblazing nature setting it apart. The deal represents the first project bond issue in Argentina and the first non-recourse project financing in the country in more than 20 years.

Stoneway, backed by the Nores family, Siemens, and SoEnergy, sold US$500m of 10% senior secured notes due 2027 backing the development of four simple-cycle power plants located near Buenos Aires with an aggregate generation capacity of 686.5MW. The company also secured a US$115m subordinated equity loan from Siemens, a US$25m revolving credit facility from Credit Agricole, and sold a further US$165m of its 10% bonds due March 2027 in November.

The transaction could be the first of many in Argentina, which is undergoing a series of changes as it looks to emerge from decades of being locked out of global markets. The deal attracted investors from the US, Europe, and Latin America, with a who’s who of companies buying bonds including BlackRock, Fidelity, Massachusetts Financial Services, Amundi + Pioneer Investments, PGGM, BlueBay Asset Management, BlueCrest Capital Management, and Allianz.

Seaport Global Securities (SGS) was financial adviser and structured the deal, with Jefferies joining as underwriter. The trustee, US collateral agent, registrar, paying agent and transfer agent is Bank of New York Mellon, while the onshore trustee is TMF Trust Company Argentina. Banco Ciudad also provided some financing.

Simpson Thacher & Bartlett, Cabanellas, and Etchebarne Kelly, and Milbank represented the lenders. Holland & Knight and Stewat McKelvey advised Stoneway. Latham & Watkins also had an advisory role on the deal. Sargent & Lundy was technical adviser. The insurance consultant was Marsh and the E&S adviser was HSE Ingeneria SRL.

Latin American Renewables Deal of the Year – Aela Energia Chile

The maturation of renewable power project finance in Latin America was encapsulated by Aela Energia’s deal backing a portfolio of construction-ready and operating projects in Chile. Aela, a venture between Actis and Mainstream Renewable Power, secured a sizeable total of US$595.7m, with US$436.5m in debt and US$159.2m in equity backing the development of the 170MW Sarco and 129MW Aurora wind farms, a 73km transmission line linking Sarco to the existing Maitencillo substation, and the refinancing of the debt backing the operational 33MW Cuel wind farm.

The deal had been in the market a while and saw a number of iterations as the sponsor group tried to optimise the structure. The attractive 18-year tenor helped the deal stand out, as did the fact that the company was able to pool together a number of different greenfield assets in different locations throughout the country while also refinancing an existing loan from the China Development Bank.

The projects will increase the installed capacity of non-conventional renewable sources in Chile by 11%. The high size and cost of the project surpassed the financial capacity of the typical Chilean lenders in renewable energy. The collaboration between multilateral lenders and commercial banks also made the deal noteworthy.

The project had various structural innovations, such as the back-ended equity, back-up PPAs to cover spot market price fluctuations, and a pre-COD exit mechanism for the equity, that will serve as an example for future projects sponsored by private equity players in Chile and Latin America that seek to develop renewable power in the face of competitive energy prices and the challenges of raising long-term financing.

The financing was provided by IDB Invest, SMBC, MUFG, Korea Development Bank, Caixabank, and KfW IPEX-Bank. VAT financing was provided by Banco Santander Chile. Clifford Chance advised the borrower, while Milbank advised the lenders. DNV GL was technical adviser. Turbines for the projects are to be supplied by Senvion GmbH in Germany.

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