Shearman & Sterling advised ENGIE and its affiliates, including Heolios Intermediate 1, Engie Eólica Tres Mesas 3, Eólica Tres Mesas 4, Recursos Solares PV de México IV, BNB Villa Ahumada Solar, Buenos Días Energía and Engie Abril PV, in connection with the limited recourse project financing and related interest rate hedging in respect of four solar parks and two wind farms in Mexico with a combined capacity of approximately 721 MW. The transaction includes a construction phase individualized per project financing, an operations phase portfolio holding company financing and, subject to the satisfaction of certain conditions, the option to finance an additional solar park or wind farm project during the construction or operations phase.
Shearman & Sterling also advised ENGIE in connection with its joint venture with Tokyo Gas relating to the portfolio of projects, which closed concurrently with the first borrowings under the project financing.
The projects were awarded to ENGIE in the Second and Third Long-Term Electricity Auction held by CENACE in Mexico. Financial closing has been achieved with respect to the first two projects and financial closing of the remaining four projects in the project financing portfolio is expected in the coming months.
The debt financing structure is novel and untraditional, comprised of six traditional project construction loan financings and a conditional holding company financing. The six individual construction loan financings are not cross collateralized (with a couple of limited exceptions) and operate on a standalone basis during the construction period. During construction, and until the achievement of portfolio status, the secured parties’ rights to enforce upon the holding company share pledge is restricted. Upon the satisfaction of certain conditions therefore, the construction loans of each completed projected will novate to the holding company so as to create a more (but not fully) traditional holding company project financing. In this manner, the portfolio as a whole provides cover for debt service during the operational phase, despite any operational deficiencies in any one or more assets. In its entirety, the debt structure maximizes the limited recourse nature of project financing during construction and uses a “built-in” refinancing mechanism after commercial operations are achieved. This all-in-one approach is unique, as typically, sponsors would finance assets separately or in subgroups and then, after the assets become operational, would refinance all debt into a single financing. Lastly, the structure ensures optimum pricing and terms.
The project financing is ENGIE’s first green loan financing for renewables projects in the world.
The Shearman & Sterling team below included visiting attorneys Natalia Pichon and Daniela Curiel Cervantes.
The Team
