Situation Overview

Norte III consists of the design, procurement, construction, operation, and maintenance of a 907MW combined-cycle gas-fired turbine power plant located near Ciudad Juarez, Mexico (the “Project”).  The Project was awarded by the Comisión Federal de Electricidad (“CFE”) to Abeinsa Juarez N-III, S.A. de C.V. (the “Sponsor”), a Mexican subsidiary of Abengoa S.A. (“Abengoa”), with a 25 year power purchase agreement (“PPA”) in 2015.

The Sponsor sourced interim financing from a group of lenders (“Bridge Lenders”) to provide the initial financing of certain project costs (the “Bridge Loan”) while structuring and negotiating the terms of the permanent long-term project financing.  Shortly after commencing construction, Abengoa’s financial performance deteriorated and it ultimately initiated an insolvency process in Spain.  As a result of Abengoa’s liquidity constraints, the Sponsor defaulted on both the Bridge Loan and PPA and construction temporarily halted.  Minimal work on the Project had been completed, and without additional sources of capital and support from CFE the Project’s commercial viability was being questioned and the PPA could be terminated.

With the Norte III project suspended and no solution on how to complete the Project in place, the Bridge Lenders retained Carl Marks Advisors (“CMA) to evaluate the Project’s strategic alternatives including a restructuring or potential sale of Norte III.

Unique Challenges

With the Sponsor in default on the PPA, which allowed CFE to legally terminate the contract at any time, Carl Marks Advisors’ immediate task was to demonstrate an expedited path to returning the Project to commercial viability.  Our team quickly developed a consensus building plan that the Sponsor, CFE, and Bridge Lenders supported.

After evaluating the situation, it was determined that a sale of the Project would maximize value and, within two weeks of being engaged, CMA had prepared marketing materials, coordinated, and launched a comprehensive marketing process.  CMA targeted a variety of international strategic and financial buyers that had the ability to acquire the Project on an expedited basis.  Catering to the unique needs of the constituents involved, Carl Marks Advisors created a dual-path sale process that provided clarity to the marketplace and maximized interest and value. The team executed on an aggressive timeline that included numerous key milestones and deliverables to mitigate PPA termination risk and build credibility and confidence with CFE.

Carl Marks Advisors developed and negotiated several transaction frameworks that allowed new investors to either partner with the Sponsor or take over the Project completely.  Presenting multiple transaction structures to the buyer universe created flexibility and allowed a variety of buyers with different goals to participate.  Carl Marks Advisors was able to create a competitive auction dynamic utilizing multiple bid deadlines and transaction structures to increase value for our client.  After a fulsome marketing process a variety of proposals were received.

Results

Carl Marks Advisors evaluated all bids submitted and after consultation with CFE, the Sponsor and the Bridge Lenders determined that a joint bid from Macquarie Group (“Macquarie”) and Techint Engineering and Construction (“Techint”) (together the “Consortium”) would provide the greatest value and best path for Norte III to reach commercial operation in a timely manner.   As part of the transaction, Techint took over as the engineering, procurement, and construction contractor but will continue to work with the Sponsor to finalize construction of the Project. In connection with the acquisition of the Project, the Consortium was able to secure new financing from ten different financial institutions. The Bridge Lenders were able to restructure their existing loan while continue to support Norte III by participating in the new financing.

Key Takeaways:

  • Building consensus among all parties is sometimes the most difficult, yet most valuable aspect of successfully completing a complex engagement. Striving to align the interests of the Bridge Lenders, the Sponsor, CFE, and a new investor required flexibility, creative thinking, and industry expertise.
  • Creatively structuring the sale process to maximize potential interest and finding the right buyer was critical. A financial advisor must be knowledgeable not only of who the key players in the market are but also what their strategic goals and capabilities are to ensure value is maximized and milestones can be met.
  • In any complex engagement that unfolds over an extended period of time with multiple parties and divergent interests, a successful outcome requires resilience, perseverance and a crystal clear focus on the ultimate goal of the client throughout the process.