Corti Wind: A step nearer to non-recourse for Argentina’s RenovAR

Pampa Energia guaranteed the first international financing for a project under Argentina’s RenovAR programme. But the hybrid project structure is strong enough to support non-recourse debt.

Pampa Energia closed a $104 million debt financing for the 98.6MW Corti wind farm in Argentina in October – the first deal that international lenders have funded under Argentina’s RenovAR programme. Argentina’s patchy record in attracting offshore debt since its 2001 default means that scrutiny of the ability of RenovAR to reassure lenders has been intense. In the end, the Corti financing offers some grounds for optimism – and plenty of room for improvements.

RenovAR is an ambitious programme that aims to increase renewables’ share of the country’s generation fleet to 20% by 2020. It offers developers 20-year power purchase agreements with Argentina’s Administrator of the Wholesale Electricity Market (CAMMESA). These contracts benefit from an intricate World Bank-supported revenue backstop, though initial signs are that lenders and sponsors may not rely on it.

The financing comprises a $31.5 million A loan from the Inter-American Investment Corporation (IIC), the private sector financing arm of the Inter-American Development Bank, and a $72.5 million B loan from Banco Santander and Industrial and Commercial Bank of China (ICBC). Both loans feature a nine-year tenor, a solid result for Argentina given ithe country's credit history.

However, the financing ultimately benefits from a corporate guarantee from Pampa, which was founded in 2005 and is active in power generation and distribution and oil and gas production and distribution. As such, the deal ultimately rests on the credit of one of Argentina’s larger corporates.

Although a corporate financing, the debt is structured in such a way that the borrower – a special purpose vehicle called Greenwind – can only use the proceeds for the construction of Corti, and an independent engineer is monitoring the construction process. The sponsor had initially hoped to close a 15-year non-recourse financing for Corti, but as the financing process moved ahead, a corporate loan began to look like the most cost-effective option. And in March 2017, Pampa sold half the project to Castlelake, a US private equity firm.

Still, the presence of the suite of contracts that would normally feature in a non-recourse financing means that it is not too much of a stretch to call the deal a hybrid. There is no mechanism for lifting the guarantee, however, so if the sponsor wanted to move the debt off balance-sheet it would need to refinance the debt completely.

The deal drew on the experience of the IIC in financing YPF’s 100MW Manatiales Behr wind farm in Comodoro Rivadavia. That loan, for a project that did not come under RenovAR, was also corporate. However, while its $100 million A loan had a nine-year tenor, its $100 million B loan, from BBVA, Banco Santander and Citibank, only ran to six years. In that respect, Corti is a sign of progress.

While pricing on the deal has not been disclosed, the debt is understood to be priced all-in at close to what Pampa achieved on its debut 10-year corporate bond, which priced in January this year for a yield of 7.625%. In August 2016 Pampa closed a $600 million bridge loan in support of its acquisition of Petrobras’ Argentinean assets priced at 700bp over Libor.

Corti is located 17km north-west of the city of Bahia Blanca in Buenos Aires province. It sells power to CAMMESA at a price of $59.36 per MWh, adjusted annually. Vestas is supplying the project with 29 of its V126 3.45MW turbines under an engineering, procurement and construction contract, and is also operating the plant under a 10-year active output management agreement.

The degree to which non-recourse debt from offshore lenders becomes a feature of financings for RenovAR will depend on two factors. The first is the degree to which local lenders will stay competitive. They can be very liquid at short tenors for familiar corporate names, and sponsors may decide that the benefits in terms of tenor come with less attractive pricing.

The second is the degree to which support for CAMMESA’s obligations from FODER, Argentina’s trust fund for renewables, becomes market standard. FODER is capitalised in part with a contingent liquidity facility from the World Bank, but sponsors are not required to ask for FODER support when bidding and many did not do so.

Future deals are also likely to feature support from ECAs, though none are understood to be participating in the first wave of RenovAR financings. But a non-recourse deal is probably fairly close to market. Central Puerto, a local generator with a 3,791MW portfolio, is understood to be talking to the IIC about a full project financing for its 32-turbine, 99MW La Castellana wind farm, located not far from Corti.

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