|Iñigo de Luisa||David Vidal|
As a result of the stable regulatory framework that now applies to the renewable energy sector and, in particular, the economic regime applicable to such projects, creditors and sponsors are able to successfully refinance them.
Creditors have been working with sponsors' chief finance officers to resize projects to sustainable debt levels and agree on new base cases.
The restructuring involves amending the terms and conditions of the existing facilities by sharing efforts between creditors and sponsors. This could be consensual, requiring unanimous consent of all creditors, or judicially approved schemes of arrangement to cram down minority dissenting creditors.
The guidelines that generally apply to these restructurings are, among others:
(i) amending the repayment schedule to take advantage of the gap between the final maturity date and the deadline of the new economic regime;
(ii) decreasing the service debt as a result of the lower margins the market is currently providing;
(iii) partial conversion of the senior debt into PPL;
(iv) updating the operations and maintenance and other management and services agreements due to the high competition and the efficiencies achieved in the energy sector;
(v) introducing new early repayment events including cash-sweep mechanisms over a large portion of the free cash flow; and
(vi) amending the former restrictions on distributions so that they are allowed for the benefit of sponsors.
One of the creditors' main concerns is the two-year claw-back risk over these transactions. Parties can mitigate this risk by:
- granting extensions and lower margins;
- executing a refinancing agreement pursuant to section 71 of the Spanish insolvency law. This will allow them to benefit from the so-called shield protection against claw-back actions; or,
- gaining judicial approval of the framework refinancing agreements to extend their effects to any dissenting entity. In this case, when there is a dissenting entity in a refinancing process, additional actions can be implemented, such as acquiring the dissenting entity's debt.
Traditional banks (both local and international) are also exiting projects and new investors are taking over through debt acquisitions. These investors are the catalysts for the restructuring.
In other cases, the financial restructuring involves issuing bonds (or even a single bond) to replace the existing debt at a discount. There is a lot of interest in these restructuring deals involving renewables in Spain.
Iñigo de Luisa and David Vidal
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