Biogas Projects A Lender s Perspective 1
Agenda: 1. Krabi Waste to Energy 2. Typical biogas commercial structures 3. Key financing questions 4. Bank due diligence Process and Requirements 2
Krabi Waste to Energy CPF s 1 st project financed biogas project 3
Case Study Krabi Waste to Energy CPF signed loan documents with project company May 2014 Palm oil mill that generates 500 cbm/day of POME wastewater In-ground biodigester reactor 2.4MW gross of Cat engines Total capital cost: About US$5MM / 150 MTHB Financing Terms: 56% project financed loan facility US$2.8M / 84 MTHB 8 year term, Thai fixed rate First priority security position in all project assets and pledge of shares Assignment of contracts to lender No corporate guarantee from shareholders 4
Case Study Krabi Waste to Energy Project took 3.5 years to reach financial close CPF was in the deal throughout; providing financial advisory and supporting developer in stakeholder discussions Review of key project agreements for project financeability Review of financial model; finalizing bank base case Drafting of project finance loan agreements, assignment agreements, pledge of shares CPF now has a reference list of documents 5
Case Study Krabi Waste to Energy Project Financing Terms 56% project financed loan facility US$2.8M / 84MTHB Explanation Lender financed 56% of the total project cost, including soft costs, civil works, Cat engines, biodigester and scrubber 8 year term, Thai fixed rate Lender offered Thai Baht fixed rate loan over 8 years First priority security position in all project assets and pledge of shares Assignment of contracts to lender Lenders loan is senior debt; If required, CPF can exercise the pledge of shares to sell the shares of the project company to realize value, or to take over shareholder responsibilities CPF can step-into any of the key project agreements to become the counterparty in that specific agreement No corporate guarantee from shareholders The shareholders are not required to put up corporate guarantees during the term of the loan; the loan will be paid purely from the cashflows of the project 6
Typical biogas commercial structures 7
COMMON KEY CONTRACTUAL RELATIONSHIPS: TYPE 1 Project Company Government Utility Power Purchase Agreement Govt approvals, environmental permits Power Plant O&M Co EPC Contractor EPC Contract Assets: Biogas Digester, Mill Assets and Power Plant Power Plant O&M Agreement 8
COMMON KEY CONTRACTUAL RELATIONSHIPS: TYPE 2 Project Company EPC Contractor EPC Contract Palm Oil Mill Host Agreement Govt approvals, environmental permits Government Utility Assets: Biogas Digester and Power Plant Power Purchase Agreement Power Plant O&M Co Power Plant O&M Agreement 9
COMMON KEY CONTRACTUAL RELATIONSHIPS: TYPE 3 Project Company EPC Contractor Palm Oil Mill Host Agreement EPC Contract WasteCo Assets: Biogas Digester Govt approvals, environmental permits Biogas Supply Agreement Government Utility PowerCo Assets: *Power Plant Power Purchase Agreement Power Plant O&M Co Power Plant O&M Agreement *Power plant will include any significant grid interconnect 10
Key Financing Questions 11
Key Financing Questions Host / Feedstock supplier Economic incentive to supplier Alternate sources of supply for project Seasonal variability of feedstock Availability Electricity Tariff High enough return to incentivize investors? Known history of tariff Offtaker motivation / alternatives Biodigester Technology Operating and financing precedents Feedstock matching technology? Safety record? Known performance parameters of technology? Generator EPC Contractor Shareholders Operators Reliability Type of maintenace contract signed Operating precedents with biogas Full "Wrap" (Full performance guarantee based on plant output) Installation / Integration experience Strong balance sheet (managing sub-contractors / posting bonds) Willing to put up performance guarantees on entire plant Strong balance sheet (Development spend & equity) Technical / Operating Experience Development experience (Financial, regulatory etc) Relationships with other parts of project Able to mobilize local labor Technical / Operating Experience Able to access parts and equipment 12
Bank Due Diligence Biogas Projects 13
Documents Required & Why Document Information Memorandum Financial Model Shareholder Structure Project Technical Concept Report Reference List of projects Key Project Agreements Project Closing List Reason Summary document for project commercial and economic concept Provides cashflow forecast of project; key in understanding financeability of project for lender Allows lenders to understand shareholder composition of project Sets out technical parameters of biodigester Builds out developer and EPC contractor experience with technologies Especially required in Project Finance; lenders need to review key project agreements before execution to ensure project is financeable Agreement between lender and developer of all documents to be delivered before first draw; Helps set expectations on timeline and deliverables Loan Agreement and Assignment Docs Form and content to be agreed between lender and developer 14
Documentation What s needed at which point A Project Info Memo Financial Model Project Structure Shareholder Structure Docs Closing List Project Schedule B Finalized Financial Model Updates from A 90% finalized Docs Closing List Project Agreements C Loan Agmt Assignment Agmt Bonds Shareholder Resolutions Development begins Screening Credit Approval First Draw on loan facility Indicative offer Commitment Letter Equity Invested 15
Sample Closing List Item Ok? Expected Completion Key Project Agreements EPC Contract Power Purchase Agreement Insurance Policies Wastewater characterization BOOT Agreement Permits and Environmental Clearances Generation Licence Factory Licence Public Hearing Construction Permit 31-Dec-14 30-Sep-14 15-Aug-14 16
17 Sample Closing List Item Ok? Expected Land Use Secured Rights of Way Land Title Corporate Documents Shareholder resolutions SPV resolutions Deed of subordination for shareholder loans SPV articles of association Financing Documents Loan Agreement Pledge of Shares Assignment of various crts Completion 30-Jun-14
Any Questions? 18