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Update on the Financing Markets
February 2012 February 2014
1
February 2013
Emerging Markets
Page 2
February 2014
Emerging Markets
Page 2
Central banks in India, Turkey and South Africa were forced to jack up interest rates last week to try to halt the exodus. Together with Indonesia and Brazil, those three countries make up the so-called Fragile Five.
Investors yanked more than $6.3 billion from emerging market equity funds last week, the largest outflow on record in dollar terms.
PF Market OutlookPF bank market lookback
Page 4
February 2014Page 4
Syndicated Loan Market Snapshot – Full year 2013
U.S. Loan Market VolumeGlobal Loan Market Volume
■ Global loan issuance reached a record in 2013. At $4.03T, 2013 surpassed 2007’s record set at $3.9T during the height of the credit market. The issuance volume was up 29% compared to the previous year.
■ U.S. market :
● Highest volume in the past 23 years: 2013 US loan issuance reached $2.1T.
● Majority of refinancings/repricings, however M&A activity at $360bn was up 40% vs. 2012 boosted by jumbo deals such as the $63bn financing Verizon’s buyout.
● With the Basel III adoption by banks and fear that this would change capacity and terms and conditions, IG issuers pushed out tenors while already low pricing often remained unchanged.
● The leverage market broke all records with $510bn in bank lending and $625bn in institutional loans, the latter surpassing 2012’s record by 87%.
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Americas EMEA APAC (ex. Jpn) Japan
Source: Thomson ReutersSource: Thomson Reuters
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I-Grade Leveraged Other % New Money
Page 5
February 2014Page 5
Project Finance Around the Globe – Full year 2013
■ Global PF volume reached a record at $418bn in 2013, up 3% compared with the previous year.
■ US led the ranking for the first year since 2008 with a record high volume of $56bn, up 30% vs. 2012, driven by the $7.7bn Sabine Pass Phase II, the largest US deal ever record.
■ India followed with a 11% drop in volume compared to the previous year.
Page 6
February 2014Page 6
Source: PFI, Dealogic
■ Energy/Power was the leading sector in North America again in 2013 and accounted for 51.17% of the total PF volume against 55.30% in 2012.
● Traditional power accounted for 53.29% of Energy volume, a step-up from its 2012 share of 33.65%.
● Volume was off in wind projects at $5.6bn in 2013 (vs. $9.2bn in 2012) as developers rushed to complete projects in 2012 before the federal tax credits expired at the end of year.
North American Sector Analysis – Full year 2013
North America PF Volume by Sector
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North America PF Volume Energy Breakdown
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Power Renewable Fuel Wind Farm
Page 7
February 2014Page 7
Project Finance Loan Market in Review – Full year 2013
■ PPA-Hedged Projects
●Margins stood around 200 bps due to asset-hungry investors.
●Liquidity is deepest for 7 – 10 year mini-perms.
●Very select group of sponsors can still push the tenor out, primarily for renewables.
●Deals were syndicated primarily as clubs. Hold levels were generally between $60-80MM at the top tier.
■ Merchant Power
●Around a dozen commercial banks will consider merchant risk in well-structured and priced transactions with strong sponsorship.
●Most merchant power financings were arranged through TLBs in 2013 (approx. 29).
■ Largest Deal in the market
●Successful closing of $7.7bn Sabine Pass Liquefaction Phase II tested depth of the PF market.
Page 8
February 2014Page 8
Overview of high-profile deals closed in 2013
■ Major International projects – significant commercial lending by export credit agencies
■ $12.,500 MM Sadara (Saudi Aramco & Dow) petrochemicals
■ $5,000 MM Nghi Son Refinery (Vietnam) petrochemicals
■ $7,500 MM Asia Gas Pipeline (Kazahkstan)
■ $7,700MM Sabine Pass Liquefaction LNG (Cheniere Energy Partners)
US Merchant Term Loan Bs : mostly gas-fired refys and some new-builds
●$1,775MM Dynegy Coalco and Gasco Power Plant (Dynegy Inc)
●$1,200MM Calpine Construction Finance (Calpine Corp)
●$1,202MM Sandy Creek (LS Power) – refy of coal-fired new-build
●$850MM Star West Generation (Highstar Capital)
●$627MM Moxie Liberty and $638MM Moxie Patriot (Panda Power) – gas-fired new-build
●$1,500 MM La Frontera Generation (NextEra)
●$350MM Raven Power Holdings (Riverstone) – refy of older coal-fired units
Page 9
February 2014Page 9
Overview of high-profile deals closed in 2013
■ US Merchant Power bank financings
●$561MM CPV Shore – Woodbridge Energy Center (ArcLight Capital, Toyota Tsuho, Competitive Power Ventures
●$200 MM Nelson (Invenergy)
Renewables
●$549MM Alta Wind X and XI (Terra-Gen Power)
●$345MM Copper Mountain Solar 2 (Sempra)
●C$685MM South Kent Wind (Pattern Energy & Samsung)
●C$ 510MM Gran Renewable Solar (Samsung)
■ Notable Deals related to low gas-price outlook…
●$1,200 MM Iowa Fertilizer (Orascon) – tax-exempt issue
●$664MM Net Mexico Gas Pipeline (Net Midstream/ Arclight)
●$400MM Creole Trail Pipeline (Cheniere)
●Further upcoming LNG export projects.
PF Market OutlookPF Market Outlook
Page 11
February 2014Page 11
PF Energy Sector Historically – Power Financing
Market Drivers Steady Load Growth
Natural Gas Outlook - $5-10/MMBtu
Renewables – RPS criteria, Government Incentives (PTCs, ITC, Cash Grant)
Coal – Emissions playing larger role
Impact on Business PPA-hedged deals
Predominantly Gas-Fired Plants
Abundance of wind generation
Growth of utility-scale solar
Older coal-unit retirements
Page 12
February 2014Page 12
PF Energy Sector Going Forward – Driven by Gas
Impact on Business Lack of PPAs – capacity additions with
merchant profile
Shale gas & related infrastructure development
• Gathering, Storage, Transport
• LNG (export)
• Petrochemical
Limited wind in U.S. starting in 2014
Larger solar projects with long-term PPAs continue
Retrofits, scrubbers, supercritical heat rates
Clean coal
Contrarian investment opportunities
Market Drivers Low or no load growth, but lowering reserve
margins in certain regions
Natural Gas Outlook
$3/MMBtu near-term
$5/MMBtu in future
Renewables – Expiration of PTCs
• Wind 2014
• Solar 2016
Coal – Toughening of emissions rules, cheap coal fuel
Page 13
February 2014Page 13
PF Energy Sector Going Forward – Driven by Gas
Impact on Business Lack of PPAs – Increased merchant new-
build activity, increased M&A activity
Shale gas development financing
• Gathering, Storage, Transport
• LNG (export)
• Petrochemical
Limited wind in U.S. starting in 2014
Larger solar projects with long-term PPAs continue
Retrofits, scrubbers, supercritical heat rates
Clean coal
Contrarian investment opportunities
Financing Response More B-loans – Investors are looking for
higher yields
5-7 year mini-perms in the bank market; growing universe of banks willing to take merchant risk
Starting margins in the 325-450 bps range
Refinancings of maturing mini-perms
Margins below 200 bps
Project Bonds for long tenor
Acquisition financing
Update on the Bond Market
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2013: A Record Year
Source: PFI
Power Crisis
Credit Crisis
Page 16
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North America Latin America EMEA Asia
US: Issuances almost doubled.
EMEA: largest increase by almost five fold.
Latin America: 25% increase. Further growth is expected in the coming years.
Global Project Bond Issuances by Region
Source: PFI
Page 17
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Infrastructure
Global Project Bond Issuances by Industry
Infrastructure again led the PF Bond volumes.
Followed by O&G, including three HY Sabine Pass LNG offerings.
Power remained strong but still not at early 2000s levels.
Source: PFI
Page 18
Usual Suspects in the Global PF Bond League Tables
Rank Bank Transactions (No) Volume ($MM)
1 Citigroup 14 5,793
2 Deutsche 7 3,097
3 RBC 14 2,828
4 HSBC 11 2,383
5 RBS 10 1,928
6 BAML 7 1,894
7 SG 10 1,883
8 Credit Agricole 10 1,851
9 Morgan Stanley 10 1,776
10 Goldman Sachs 6 1,761
All Star Institutions i.e. Top 10 in all PF disciplines: Advisory / Bank / Bond
Page 19
An Overview of Global Credit Enhancement Initiatives
Over the past year, great strides have been taken globally in the development of bond enhancement initiatives, with two initiatives reaching financial close.
On a limited basis, the transportation sector has seen bonds issued alongside gov’t funded cash flow subordinated loans.
CAF Development Bank has created a bond enhancement program featuring 20 to 30% bond guarantees.First bond issued in December 2013 for Peruvian greenfield power plant.
EIB PBCE program features a combination of subordinated liquidity facilities, and direct senior bond purchase.Two projects closed in 2013.
UK Guarantee Scheme featuring a 100% debt guarantee for up to half of total debt requirements.First bond expected in Q1 2014.
The African Development Bank prepared a 2013 strategy report outlining potential for an infrastructure bond market.
Page 20
An Overview of Global Credit Enhancement Initiatives
Project bond credit enhancement mechanisms have been developed for two goals:
● Develop a Project Bond Market to help source new capital to address growing infrastructure financing needs
● Improve Project Economics, as such products can provide low cost financing
Various tools may be applied:
● Subordinated undrawn liquidity facility: Applied to mitigate construction risk, cash flow shortfall, or debt servicing
● Political Risk Guarantee: Either implicit or explicit, to be determined by sovereign framework and history
● Project Contract Guarantees: Guarantee the off-take contract, in the event the counterparty is sub-investment grade
Page 21
AUG
UST
201
3
USD 435,000,000
Autopistas Metropolitanas de Puerto Rico
Toll Roads144a Senior Secured Notes
Due 2035
Joint Bookrunner
Why Significant?
● First 144a / Reg S toll road transaction with traffic risk in the United States in many years (2006).
● First Puerto Rico-related refinancing performed as a project bond.
CA CIB’s role
● Structuring Agent and Joint Bookrunner.
● CA CIB 100% underwrote the associated ancillary bank facilities.
Transaction Summary: Autopistas Metropolitanas de Puerto Rico, LLC
Page 22
JANU
ARY,
APR
IL, N
OVEM
BER
2013
USD 1,500,000,000
SABINE PASS LIQUEFACTION, LLC
$500MM add-on to 5.625%Senior Secured Notes Due 2021
$1BN 5.625% Senior Secured Notes Due 2023
Joint Bookrunner
5.625% Senior Secured Notes Due 2021
USD 1,500,000,000
USD 1,000,000,0006.250% Senior Secured Notes Due 2022
Transaction Summary: Sabine Pass Liquefaction LLC
Why Significant?
● Major LNG project still in construction.
● High profile high yield offerings that were well received in the market.
CA CIB’s role
● Joint bookrunner.
● CA CIB was an MLA in the associated bank facilities.
Page 23
Global Project Bond Market Review
Emeka NgwubeManaging DirectorProject Bond – Americas and Asia
Tel: +1 212 261 [email protected]
