Renewables, debt financing
Hi there,
I was given a case study during the interview, I was asked me to perform a valuation of a wind farm. All assumptions were straight forward except this one:
“LTC (loan-to-cost) equal to 80%; debt is expected to be arranged at COD (commercial op. date) (CAPEX to be financed from own funds).”
So am I reading this right, they want to build a wind farm using own funds and then debt financing will be received at the start of O&M period. This doesn’t make sense right? What are they trying to say here?
thanks,
They’ll refi it once operational and it’s derisked. You’ll do the same thing with a construction loan and refi it out for cheaper longer term debt. Sounds like they just are wanting to pay financing fees only once and not be levered during the risky phase, gives you flexibility on timing etc. to not have debt that is looking to be refi-d out in the short term. It’s just matching risk profiles and on real assets like this the risk profile changes substantially after operations begin.
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