At the end of 2011, EDPR’s financial debt was 3.8 billion euros (+8% YoY), being circa 80% of it loans with EDP Group while the remaining is debt with financial institutions, mostly related to project finances. Net Debt achieved 3.4 billion euros in 2011, increasing from the 2.8 billion euros by the end of 2010, mainly reflecting the capital expenditures and the financial investments done in the period.
EDPR’s debt has a long-term profile. Most of the debt matures beyond 2018. Loans with EDP Group are closed for a 10 year period at fixed rates. Project finances also have a long-term duration. Such strategy enables the company to match the operating cash-flow profile with its financing costs.
“The right long-term funding strategy is key to keep a solid balance sheet in a capital intensive business”
Rui Teixeira, CFO
As of December 2011, 53% of EDPR’s financial debt was in Euros, 40% in US Dollars and 7% in other currencies, mainly Zloty and Brazilian Real. EDPR finances in local currencies for investments in non-euro currency geographies, such as the US, Poland and Brazil, reducing its financial exposure to forex changes.
92% of EDPR’s debt is at fixed rate
92% of EDPR’s financial debt was negotiated at a fixed rate, which mainly represents the financing agreements with EDP. EDPR follows a long-term fixed rate funding strategy to match the operating cash-flow profile with its financing costs.
Alternative funding sources
In 2011, EDPR established new project finance for 298 MW in several countries and additionally the ENEOP – Eólicas de Portugal executed a project finance for the second group of wind farms developed in Portugal (376 MW), to be funded in 2012. Thus, there is strong evidence of EDPR competences in the development of top quality projects and financial structures meeting the requirements of partners with rigorous investment criteria and a strong focus on renewable energy development.
- In Romania, the company executed project finance throughout 2011 with the European Bank for Reconstruction and Development and the IFC for a total of 188 million euros for the entire asset base in operation in this country.
- In Brazil, EDPR raised 228 million real in project finance with the Brazilian Development Bank to secure the funding of the 70 MW installed in 2011.
- EDPR’s associated company ENEOP executed a project finance structure with the European Investment Bank for its second group of wind farms developed in Portugal, totalling 376 MW for the amount of 260 million euros.
In order to fully utilize tax benefits available to EDPR in the US, the company structures partnerships with institutional investors, which may include one or a portfolio of wind projects. These partnerships create two classes of shares and allocate the tax and other benefits among the two classes: shares retained by the company are typically called “Class A interests” and institutional investor’s shares are typically called “Class B interests”.
Institutional investors make upfront investments in the structure and in exchange receive the tax benefits, a portion of the operating cash- flow and income generated by the relevant wind farms. The company retains the most of the operating cash-flow generated, as well as the day-to-day operational and management control.
Liabilities referred to as institutional partnerships in the US stood slightly increased at 1,024 million euros. In 2011, EDPR established two new institutional partnership structures in the Timber Road II wind farm (116 million dollars) and in Blue Canyon VI wind farm (124 million dollars, of which 97 million dollars realized upfront).
- In July, EDPR established an institutional partnership structure for the Timber Road II wind farm (99 MW). In exchange for an economic interest in the wind farm, EDPR received 116 million dollars. The institutional equity agreement provides the investor with access to the accelerated asset depreciation (MACRs) benefits and to the cash reimbursement.
- In December, EDPR received 97 million dollars and additional 27 million dollars are expected to be funded during the life of the Blue Canyon VI wind farm (99 MW) as PTCs are generated. The institutional equity agreement provides the investor with access to the MACRs benefits and to the PTCs.
Net financial expenses
Net financial expenses mainly reflect financial interests in loans with EDP Group and bank loans, and accrued costs with the Institutional Partnership Liabilities. Net interest costs increased at a slower pace than the average financial debt evolution (14% vs. 15%) but total net financial expenses increased 40% to 244 million euros mostly explained by non-recurrent items.
The net financial expenses were impacted by the negative 22 million euros of forex differences, mostly related to assets and liabilities in Polish Zloty, Romanian Leu and US Dollar. In Poland, the Zloty devalued 12.2%, in Romania, the Leu devaluated 1.4%, while the US Dollar appreciated 3.3% vs. the Euro in 2011.
The net interest costs increase 14% YoY at a slower pace than the financial debt evolution (average financial debt increased 15% vs. 2010 to 3.5 million euros), following a stabilization of the average interest rate paid. As of December 2011, the average interest rate was 5.4%, above the 5.2% registered in December 2010, reflecting the long-term maturity profile of debt and the wider spread on the debt contracted since 2009, in line with current market prices.
Capitalized costs were 34 million euros vs. 68 million euros in 2010, in line with the lower capex in 2011 vs. 2010.