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Real Assets

Asset-backed junior debt financing for renewable energy assets

05/01/2020

Long-term junior debt (mezzanine financing) offers an attractive solution to investors seeking long-term stable cash flows from renewable energy assets, with higher returns than senior financing and lower exposure to merchant power prices, than for equity investment.

Renewable Energy Mezzanine Financing

Mezzanine financing replaces part of the equity and is carefully structured to match the cash flows generated by the project. It is structurally subordinated to the senior debt financing without interacting with its existing structure.

The product has significant development potential amidst decreasing returns from equity investments and very conservative leverage levels proposed by banks to finance projects without government subsidies, making it advantageous for both investors and borrowers:

  • Investors benefit from stable long-term cash flows generated by the underlying projects with higher coupons than senior debt financing.
  • Borrowers can redeploy the proceeds into new projects while keeping 100% ownership of the asset.

Our approach

Prime Capital has sourced, structured and currently manages multiple junior debt investments in operating and construction renewable energy portfolios in Europe for its clients.

We focus on Independent Power Producers with construction and operating assets looking to re-deploy their equity in development assets or developers looking to build out their own production capacities.

The financing is structured in such a way, that it does not interact with the senior financing and at the same time leaves the ownership of the assets with the borrower. Cash flows of the underlying assets are carefully analyzed to determine the repayment profile of the junior debt.

Junior debt for renewable energy assets at a glance

  • Additional long-term debt available for renewable energy project owners offering attractive and stable cash flows from renewable energy assets to investors
  • Borrower keeps ownership and control over the asset
  • Potential for large-scale transactions and deployment of large volumes through pooling of multiple assets in different jurisdictions
  • Attractive risk-return profile for investors, flexible financing solution for the borrower
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