Big league financingfor big time growth -- Babcock & Brown

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Setting yet another benchmark for innovative and aggressive investment in the wind business, Babcock & Brown (B&B) has secured the world's first global wind farm portfolio financing in a massive EUR 1.03 billion deal which gathers the assets and growth aspirations of subsidiary Babcock & Brown Wind Partners (BBW) into a single, highly flexible financing facility. The refinancing of the company's wind asset portfolio follows close on the heels of a spate of acquisitions in recent weeks amounting to around 700 MW, which cement the company's position as the fourth largest owner of wind power in the world, behind utilities Iberdrola of Spain and FPL of the US and Spanish independent power producer Acciona Energia.

As an institutional investor operating the world's only globally diversified wind power investment fund, B&B was already in a league of its own before persuading a bevy of four banks to roll all of BBW's project, asset and corporate level debt into a single, corporate facility. That the banks would go along with the idea is clearly seen by B&B as a tribute to its wind business strategy. From the outset, B&B's approach has been to mitigate risk through diversification by building a geographically diverse portfolio in a variety of regulatory regimes and employing a wide range of wind turbine technology. It is a significant transaction which "demonstrates the credit strength of BBW's portfolio," asserts CEO Miles George.

The multi-currency facility is provided by four international banks: the Portuguese banks Banco Espirito Santo de Investimento and Banco Millennium BCP Investmento, the Bank of Scotland and France's Dexia Credit Local. The arrangement allows money to be used across a range of purposes, such as construction and guarantee facilities. The financing package can be resized and scaled up as the company grows and should allow BBW to achieve a greater degree of capital efficiency and flexibility, making it fleeter of foot in the acquisitions market. "The facility will achieve savings from a funding perspective and enable BBW to continue to participate effectively in a growing wind energy market," says George.

With easier access to finance, BBW looks set to continue its meteoric rise into the big league. From just four wind plant totalling 147 MW installed capacity in 2005, the firm will grow to 65 plant and 2076 MW if the recently announced acquisitions go ahead.

Spanish risk

Of these, the one with most perceived risk is an agreement to buy 64.2 MW of online capacity in Spain from a Japanese joint venture between power groups Marubeni and Electric Power Development (J-Power) for a provisional price tag of A$180 million (EUR 111 million). The deal, due to close on June 29, will give the Japanese partners a healthy increase of around EUR 38 million on the EUR 74 million they paid to Spanish wind company Gamesa for the two wind stations as recently as 2003.

Given the current revision of the Spanish wind market framework, however, BBW's decision to opt in, at such a high price, has been slated by the Australian press as risky. In BBW's defence, George says the drastic changes first proposed by the Spanish government have been modified. "The tariff regime will not be as attractive as before, but will still be attractive according to BBW's present analysis," he asserts. The two plant are located at Pontevedra in wind-rich Galicia in northwest Spain, yielding an annual production of 186 GWh.

The Spanish deal follows an agreement for BBW to buy three wind farms in America from B&B's so-called US07 portfolio once they are complete in early 2008. B&B just sold part of two Texas wind farms it owns together with Catamount to GE Energy Financial Services for $180 million (page 46). BBW is also considering buying 50% of B&B's Portuguese renewable energy company Enersis, which BBW's parent acquired in late 2005. Enersis runs a portfolio of 524 MW operating assets. BBW also has first rights to buy the remaining 50%, which it expects to do in the next year or so.

To pay for its shopping spree, BBW recently raised A$156.8 million through an institutional share offer launched in Australia on April 26. Such was the strength of demand for the shares that BBW agreed to make a further placement subject to approval by BBW shareholders later this year.

In addition, BBW looks almost certain to receive another significant cash injection now that B&B's revised A$8 billion takeover bid for Australian energy company Alinta has the full backing of Alinta's board in preference to Macquarie Bank's rival offer. Under the terms of the bid, launched by B&B with Singapore Power International, BBW nets A$201.5 million of the $225 million sale proceeds gained by Alinta late April after it sold its only remaining wind farm asset, Wattle Point in South Australia, to a subsidiary of ANZ's Energy Infrastructure Trust. Alinta will vote on the takeover in August.

Alinta acquired Wattle Point in October last year as part of the merger of its infrastructure assets with those of Australian Gas Light. Alinta put Wattle Point up for sale on BBW's recommendation. After due diligence, BBW decided there were limited opportunities for it to add value to the 91 MW wind farm. Instead it plans to use the proceeds to help fund more attractive investments, it says.

Strong pipeline

Looking forward, George says BBW has access to a strong development pipeline of nearly 4000 MW through both the B&B wind project portfolio and framework agreements with wind project developers Gamesa in Spain and Plambeck Neue Energien in Germany. The agreements require the developers to sell BBW 450 MW in Spain and 300 MW in Germany over the next two to three years.

BBW will also continue growing through negotiated acquisitions. If enough opportunities arise which meet its strict investment criteria, George estimates the company could triple in size in the next three to five years.

Whether the Babcock & Brown wind business will continue its climb up the world rankings remains to be seen. Consultancy Emerging Energy Research (EER) places the company "a distant fourth" in the global wind ownership stakes. While it may pull away from players with less than 1500 MW, EER reckons it could be challenged for fourth this year by utility Energias de Portugal, which recently boosted its wind asset holdings by acquiring American developer Horizon Wind Energy (Windpower Monthly, May 2007). GE Energy Financial Services is breathing down B&B's neck. For its part, BBW believes its new financing facility propels it firmly into a league with the big boys.

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