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Sunday, 17 December 2017

In IFR this week: Abengoa financing still in doubt

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  • Abengoa

Bonds/Equities

Concerns over project finance loan as energy group outlines €2.2bn restructuring

Abengoa intends to refinance a €200m project finance loan provided by a US hedge fund, but may have trouble doing so given the market’s continued wariness of the Spanish energy company’s debt.

Abengoa decided to call the loan ahead of its July agreement to sell the underlying assets, as part of a disposal programme to bolster its balance sheet. Multiple sources told IFR the loan came from Elliott Management, the US fund involved in a long-running battle with Argentina over its sovereign debt default, and is yet to be repaid. Abengoa declined to comment.

The episode highlights the difficulties the company could still face in refinancing billions of euros of project finance bridge loans. Abengoa classes many of these loans as “non-recourse debt in process”, excluding them from its corporate debt figures even though they usually benefit from a corporate guarantee.

Abengoa’s decision to reclassify a corporate bond as non-recourse last year spooked the bond market, triggering heightened scrutiny of its accounting practices and debt levels.

The company had €2.2bn of non-recourse debt in process as of June 2015.

Project bond plans

The €200m loan, which the company described to investors as an “equity unlock”, was raised against its Solaben 1 and 6 Spanish solar projects in October 2013. Project Finance International, IFR’s sister publication, reported in July that Abengoa appointed banks to raise a project bond of up to €285m to refinance the bridge loan, but the deal has not got off the ground due to the uncertainty over the company’s finances.

Several investors said the bond would be a difficult sell despite the project’s investment-grade status, given that the company’s corporate bonds are trading at deeply distressed levels – even after securing underwriting last week for a proposed €650m rights issue.

Abengoa intends to sell Solaben 1 and 6 to US-listed yieldco Abengoa Yield, in which the parent retains a 49% stake, announcing in July that it expects total cash proceeds of about €277m.

If the refinancing continues to stall, it could limit the benefits from the planned sale of the two solar projects, as Abengoa has said new debt would unlock up to €90m of extra cash.

“They are following their money, protecting their interests”

Abengoa told investors on Thursday that it aimed to raise at least €1.2bn from asset disposals by the end of 2016, including possibly further selling down its stake in Abengoa Yield, but investors have questioned whether that could lead to change of control waivers being triggered.

One said they would be triggered if Abengoa’s ownership dropped below 35%, meaning the yieldco could be forced to buy back its project debt. Abengoa declined to comment on this. Abengoa Yield’s operating subsidiaries had US$4.9bn of net project finance debt as of June 2015.

Lender protection

On Friday, Abengoa included a move to reduce the par value of its A and B shares at its October 10 EGM, where the €650m capital increase will be put to a shareholder vote. The reduction is necessary to allow the rights issue to be priced at a significant discount to the prevailing share price.

Credit Agricole, HSBC and Santander have agreed to underwrite €465m of the rights issue, with no indication on how that figure is split among the three banks. Major shareholding foundation Inversion Corporativa will stump up €120m. Another €65m is coming from US fund manager Waddell & Reed, although its commitment is not irrevocable.

The bank underwriting covers the main line of stock, B shares, with IC covering the A share portion, and is contingent on the rights issue obtaining regulatory approval, shareholder approval at the EGM, the conclusion of ongoing due diligence and the commitments from IC and Waddell & Reed. IC’s voting rights will be diluted below 40% following the rights issue. Terms are expected to follow the EGM.

Both lines of Abengoa stock rallied as backing for the capital increase was finally secured, though the gains were mainly on Wednesday afternoon as news leaked. The B shares closed up 26.132% at €0.975 on Wednesday, while the A shares closed up 17.712% at €1.595.

That bounce was exhausted when the restructuring plan was detailed on Thursday, with the B shares closing down at €0.938, while the A shares held firm at €1.599.

It is unclear how the foundation will finance its €120m commitment to the rights issue. A senior banker with knowledge of the company said that a loan would be a more likely move than a pure tail-swallow.

The senior banker added that while the resolution on underwriting provided some comfort, it was notable that there was neither a bulge-bracket bank attached to the underwriting nor a non-lender to Abengoa. “They are following their money, protecting their interests,” said the banker.

A head of syndicate at a bank away from the deal called the underwriting “self-serving”.

In a similar move, Dutch infrastructure business Royal Imtech raised €600m through a rights issue in October 2014 with underwriting from a syndicate of banks that had previously provided loans. That ensured proceeds went to the lenders, but left the banks holding more than 47% of the company after take-up of just 51.31% for the rights issue. The company was declared bankrupt in August 2015.

(A version of this story will appear in the September 26 issue of the International Financing Review, a Thomson Reuters publication)

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