Writedowns of the year

PFI Yearbook
5 min read

We did get a submission for Yunlin as deal of the year, restructuring deal of the year that is. And actually, the argument was fairly compelling. It was a successful restructuring in the sense that the fact it happened allowed the project to finish its 2023 construction programme ahead of schedule for this year – albeit down US$1.7bn.

Phew. Another success point of the restructuring is that the scheme has gone from having a potential return to creditors of between 2.38% and 9.94% to now between 90% and 100% of their debt. Indeed, as many project banks were said to have written down fully the value of the debt, they can now look to some sunny uplands. Happy days!

The cost? Ah – not insubstantial. The sponsors put in a whopping US1.2bn extra to get the scheme over the line and the banks had to stump up US$500m. Loan tenors were extended out variously to 2044 and 2054 from 2037 and cash sweeps were introduced. Still – the project finance structure held, so presumably the scheme will not be registered going forward in Moody's project finance loan default tables as an active default. But at US$1.7bn it has been a painful, maybe record-breaking, experience.

If we did have a Restructuring Deal of the Year, however, Yunlin would not have been without some competition, In previous years we had one deal a year – Neart na Gaoithe in the UK, Yunlin in Taiwan, etc. This year, sponsors – offshore wind sponsors of course – hit the buffers with their projects and wrote down significant wedges of cash.

Just as Yunlin was completed, Orsted took a US$2.4bn provision on its US portfolio due investment tax credit (ITC), supply chain and rising interest rate issues. A few weeks later, it increased this to US$4bn due to the cancellation of the 1.1GW Ocean Wind 1 and 1.1GW Ocean Wind 2 projects off New Jersey. A further US$1.5bn could be added to the hit. Then Equinor and BP booked impairment charges of US$300m and US$540m on their offshore wind farm projects in the US after New York officials rejected a request to renegotiate terms.

The sponsors involved are all top notch. GIP's Skyborn Renewables is the lead sponsor on Yunlin alongside Egco and Sojitz of Japan. Orsted was once the darling of the stock market, reaching DKr1,350 a share in early 2021. It was impossible not to read an analyst report at the time without the analyst suggesting to other energy companies: "Why aren't you just like Orsted?" Now it is down to DKr375. And of course, BP and Equinor are top energy companies in their own right.

Other companies have simply been handing back their offshore power purchase agreements (PPAs), taking writedowns. Iberdrola affiliate Avangrid cancelled its power purchase agreements (PPAs) with the Connecticut Electric Distribution Companies for output from its 804MW Park City offshore wind project taking a US$16m hit to void the contract, which added to the US$48m it paid to terminate its contracts with the distributors for their Massachusetts offshore projects. Shell New Energies US and Ocean Winds North America-backed South Coast Wind terminated the PPAs with Massachusetts electric distribution companies for its 1.2GW SouthCoast offshore wind farm. The joint venture paid US$60m to the Massachusetts Department of Public Utilities to terminate the contracts.

Hopefully, this will be the bottom of the market and some of the provisions can even be clawed back. 2024 will be the start of a new era for offshore wind, with higher tariffs for offshore wind being offered on new schemes. In the UK, bidders will be offered up to 66% more in the summer compared with what was on offer in 2023. The move was very much welcomed in the industry, although surprisingly not commented on in the wider public arena even though a 66% increase in price is a 66% increase in price. Even Thames Water is not asking for 66%.

Still, help is on its way. Film maker and Comic Relief founder Richard Curtis has established the Make My Money Matter campaign with other celebs including Emma Thompson, Brian Peter George St John Le Baptiste de la Salle Eno, Mary Portas and Deborah Meaden. He said during the summer "Comic Relief has raised, you know, £1.5bn in 35 years. And yet this campaign Make My Money Matter has helped to move £1.3trn in the course of two and a half years."

Writedown misery solved! Love Actually. But no Love Actually for Barclays. Apparently, its sponsorship of Wimbledon was "a very bad line call" said Curtis. Barclays responded by saying it has put £95.5m into the Moray West offshore wind financing, one offshore wind deal this year that escaped offshore wind's annus horribilis with some real now money.

To see the digital version of this report, please click here.

To purchase printed copies or a PDF of this report, please email leonie.welss@lseg.com