FAVOURABLE BANK FINANCING OF A SOLAR POWER PLANT – WHAT WE DID AND HOW WE DID IT

I am happy to have supported a client from the engineering / energy sector in obtaining EUR 3m 10-year bank loan to finance its solar power plant project. The financing has been secured under extremely favourable conditions.

What have we managed to secure?

• Full market risk accepted by the bank (hence no PPA or a similar arrangement)
• Very low interest rate – 1,62% fixed for the duration of the loan (10 years)
• No recourse to client’s other businesses
• Only one, favourable financial covenant
• Much more, but these elements shall remain undisclosed (these remain my secret sauce 😉)

How we did it?

First, we built the business case, including the cash flow projections under several scenarios. The biggest challenge were the fluctuations of key assumptions over the past year (most notably of the electricity price), because there was no PPA or a similar agreement.

Second, based on the cash flow model, we selected the appropriate financing structure, including the loan tenor, acceptable interest rate, borrower, acceptable guarantors, etc.

Third, resulting from the points 1 and 2, we identified relevant contractual clauses. We split them into a) dealbreakers, b) clauses ready to negotiate and what we would be ready to accept under each of them, and c) acceptable clauses. This allowed us to be clear towards the bank and ourselves what we can realistically achieve.

Finally, the client signed the deal!

All of this would not have been possible without a proper strategic approach. Obtaining bank financing requires diligence and strategic thinking, with very little space for error. You have to develop a plan A, but also a plan B, C… – many alternatives and mitigants to what could come your way.

I have to admit – it was not an easy ride. The key assumptions were changing constantly, including electricity price, interest rate, equipment price, and most challenging – the bank’s standpoint. To be honest, we did not manage to get everything we wanted, because everything comes at a cost. Still, we managed to renegotiate the bank’s initial requirements and sign the deal under very favourable conditions.

This project will improve Croatia’s energy balance by adding sustainable and renewable energy to its energy mix.

(The client’s and the bank’s name shall remain undisclosed due to confidentiality reasons.)

_____

In case you are contemplating obtaining a bank loan and:

• want to secure favourable financing
• find the best possible financing structure for your company so you don’t risk losing everything
• want to achieve many benefits unknown to most borrowers

– feel free to get in touch.