PensionDanmark agrees $200 million Cape Wind deal

UNITED STATES: The much-delayed 454MW Cape Wind offshore project has moved a step closer to financial closure following a $200 million investment commitment from a Danish pension company.

Cape Wind's meteorological tower... the only part of the project to be built

PensionDanmark's loan, hailed as a milestone by Cape Wind president Jim Gordon, is conditional upon a final investment decision to be made by the end of the year.

In March, Cape Wind signed a term sheet to engage the Bank of Tokyo-Mitsubishi UFJ (BTMU) to lead the commercial bank portion of debt financing for the project, proposed to be built in the Nantucket Sound off the coast of Massachusetts.

Under the terms of the deal, BTMU agreed to provide a substantial chunk of the project's debt and coordinate the involvement of other commercial banks potentially lending to the project. The developer has said it expects to complete project financing and begin construction by the end of the year.

PensionDanmark's investment in the project is in addition to the main debt being arranged by BTMU, and comes in the form of a mezzanine loan made via Danish fund managers Copenhagen Infrastructure Partners (CIP).

Mezzanine debt represents a half-way house between equity investment and major loans, with the mezzanine debt holders behind the main debt holders and ahead of equity investors in the queue for payments if an asset ever goes bankrupt. This increased risk taken on by mezzanine debt holders not only gives them greater returns than traditional lenders (i.e. they charge higher rates of interest), but often also de-risks the main debt package and helps bring down the cost of the bank loans.

PensionDanmark became the first pension fund to invest directly in offshore wind when it acquired a 50% stake in Dong Energy's 166MW Nysted wind farm late 2010. Since then it has taken equity stakes across several onshore and offshore wind projects.

"Investing in energy infrastructure is not new to us," said PensionDanmark CEO Torben Moger Pedersen.

"We have made equity investments in two offshore wind farms in Denmark and three onshore wind farms in the US. At a time when bond yields are very low, this [Cape Wind mezzanine loan] is expected to be an attractive opportunity for us."

The Cape Wind project — for up to 130 3.6MW turbines sited 7.7 kilometres off Cape Cod in Massachusetts – has been in development for 12 years, although it now looks likely to become the US's first offshore wind farm.

High-profile opponents have included now-deceased former state senator Edward Kennedy and former state governor Mitt Romney.