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Sponsored ContentRoundtables

North America Project Finance Midyear Review 2020

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Brian Goldstein, Head of Project Finance, CoBank

Matthew Wade, Executive Director, IFM Investors

Johana Afenjar, Senior Director Capital Markets, Clearway Energy Group

Sean Yovan, Senior Director Origination, Innergex Renewable Energy

Shravan Bhat, Reporter, Power Finance & Risk (moderator)

PFR            Let's start with Covid because it's the thing that has really shaped this year, and makes us feel like we’re all living in a chapter in a history book. Could each of you describe how the pandemic has impacted your ability to originate or bring in new business?

Sean Yovan, Innergex Renewable Energy:           It hasn’t been as impactful as I thought it would be. We’ve had little-to-no impact on our ability to discover and pursue competitive and bilateral opportunities for PPAs and hedges. The one difference is video conferences have replaced office visits and, while I prefer and miss the face-to-face interaction with customers, less time on planes has resulted in increased productivity.

My hope is that we can get back to normal soon. Video conferencing has limitations, and there are lunches, dinners, events that bring us closer together as people. It's just critical to our business.

PFR            Do you think when things do go back to normal that we'll see a permanent change to more things being done on video conferencing rather than in person?

Yovan, Innergex:       I do. This is proof that Microsoft Teams and Zoom work well. I'm currently involved with contract negotiations with an offtaker and, while it would be great if we were face-to-face, we have the entire deal team on both sides interacting productively. While it has its challenges, it's working.

In the future, if we are planning to check-in or catch-up with someone located across the country, we'll likely use video conferencing and save the travel and overnight stays for working meetings and conferences.

Brian Goldstein, CoBank:    We’ve been working remotely since the middle of March. We have roughly 1,200 employees and we are 98% working remotely. So we were relatively surprised, like Sean, at our ability to transition to remote operations. And that includes all the back-office operations as well as origination and the portfolio management credit work. We are also surprised at the limited impact that Covid-19 has had on our origination activity.

We can touch on this a little bit later, but CoBank had significant liquidity and had been very proactive with the onset of stay-at-home to ensure that we positioned ourselves to have access to capital we needed to meet the demands of our borrowers. That put us in a pretty good position to continue to be active. A number of our European and Asian competitors, given the initial disruption, had stepped back, partly to mirror what happened during the Great Recession. It was a little unclear where interest rates were going, access to funding, the impact on credit spreads etc., and that meant some of the lenders had to back away. For CoBank, it provided us actually with a tremendous opportunity. We’ve been able to take advantage of that in our volume over the first half of the year, which has actually been up from prior years.

We have seen, as the market has stabilized, a number of those competitors re-enter the market. In some cases they have to make up for lost time and so we’re seeing a surprising rebound in aggressiveness on a number of RFPs that we’ve looked at of late.

Johana Afenjar, Clearway Energy: I definitely echo what Sean and Brian just said in terms of being able to adapt to a remote work environment, which Clearway also decided to implement pretty early. Technology is here today to help us do that. We’re lucky in that sense. It's made us efficient, perhaps more efficient, in saving commute time, saving some unnecessary travel.

Perhaps what we’re missing are the big conferences or the gathering events where we sit down and talk to people and share that what we see and what we do. So that, for sure, is something that we’re missing.

About half of our workforce for Clearway is actually our operations and maintenance business, which is a very important part of our business. That, of course, has been impacted differently for us, and so we implemented measures for safety.

Matthew Wade, IFM Investors:        We transitioned along the same timeline as Brian mentioned, the second week of March, to remote working. What we undertook fairly quickly, and what we benefited from, is a credit assessment fairly early on to ascertain what problem credits we might have – what we might have to triage.

There's been a little bit more resilience on the power side. The midstream sector suffered some relatively quick distress. But we were able, despite not being able to do it face-to-face, to undertake a liquidity assessment of many of our borrowers early on to see what the impact was of drops in commodity pricing.

But early on, as we’ve gone through Q1 into Q2, with the wider impacts of Covid, many of the GPs and the sponsors pulled down liquidity to support their portfolio companies. We saw this occur fairly early on as sponsors and projects shored up liquidity.  It’s a topic we focus on for regular discussions with our borrowers.

And then, because we’ve got that constant dialogue to understand what sponsor and project needs are, there has been some additional business. I'd say that the people that have an ability to push off financing, have done. There's been a couple of M&A transactions where there have been deadlines to hit, or contractual deadlines that have to be achieved. But in the project finance space, there's a lot of flexibility that borrowers and sponsors preserve, and they’ve taken advantage of that. Activity has started to pick up. But so far, we’ve made the transition and there hasn’t been a significant impact in terms of our ability to originate new business.

PFR            Matt, have you seen any delays or any interesting experiences on the execution side? We’ve heard that if there were deals that were slightly on the margin, those may have to be held off until next year. But, deals that were more or less moving ahead maybe got delayed a little, maybe the interest rate went up a little, but they're still getting done. What has been your experience on that front?

Wade, IFM:     Deals that we'd characterize as relatively straightforward, where the sponsor wants to plough on, you’d see pricing increases of maybe 25 bps to 50 bps on the bank side. The deals which might have been on the margin, there has been a little bit of a credit push-back. To be honest, through the back-end of last year and into the beginning of this year, it was a fairly borrower-friendly market, but we are starting to see covenants tighten up and aspects of documentation being borrowed a lot more from what you might have seen a couple of years ago. There are actually lenders who are pushing back a little bit more now.

On the power side, there was an M&A transaction that got done. It was probably 50 bp, 75 bp wider than where they initially thought it might get done. [IFM did not participate in this transaction.] But again, it was an M&A deal, so they needed to achieve a deadline. Where sponsors have got flexibility, they're opting to take that as we move into the summer. In Q3, many of them have got these deadlines and they’ve got to close. While spreads have widened, underlying rates are down, so the all-in costs to the borrower are still relatively competitive, on a fixed or floating rate basis.

Where there are credit considerations, subordination holding company or back-leverage finance to juice-up equity returns, as you saw at the back end of last year and into this year, that’s where lenders are saying: "No, I've seen a few projects that have had some trouble. I need to see a decent record here to seek additional credit protections."

Those are definitely some of the things that we’re starting to see, and that’s percolating into transaction timetables and the pricing of those riskier pieces of the capital structure. Those margins are out disproportionately to what you're seeing on the senior secured side.

Afenjar, Clearway:    Definitely. What we’ve seen is that the constraint was not necessarily on liquidity, although, at the beginning, funding costs for some European or Asian banks, as Brian mentioned earlier, were definitely a driver. But really, what has happened is that we’ve seen banks’ credit committees be very focused on looking at the risks, and that has impacted the timelines to close. Of course, the pricing, in the beginning, widened on the bank side 50 bp on average, like Matthew said, but what we’ve really seen and experienced is a lot of scrutiny from credit committees. And even maybe revisions from credit committees. Brian, you may comment on that, but banks had to go through a higher level of approval to get a deal done, which required a lot of analysis and a longer credit process.

Goldstein, CoBank:  I would agree with that, Johana. Every financial institution, given the disruption in the market, had to step back and then reassess. A natural process at banks is to elevate the questions to a higher level, because it becomes a strategic consideration, if we have constraints on our capacity, where we want to deploy it. You need to make potentially hard decisions. For some of the banks, they need to back away from certain market segments.

A slightly longer process for approvals is certainly something we’ve seen. But it hasn’t been anywhere near what it was like in 2008, particularly because the financial markets stabilized really quickly. Matt’s point is right on. We saw, particularly on the bonds used for comparable pricing, the spreads really gap out. But as we saw the gap out in credit spreads, absolute rates came down. And so the ability of our project developers to move those projects forward, because, fundamentally, returns were not materially impacted, enabled a lot of the deals that were in our pipeline prior to Covid, to continue to move through our pipeline, ultimately to closing. The question is, where were we in our process when Covid hit? For deals that we were already mandated on, or where they already had credit approval, everyone tried to hold as closely as they could to mandated pricing – certainly on deals that were not long-term. You saw more of a reflection in current pricing in those longer-term deals.

PFR            Within your organizations, when there's a large external shock like this, do they ask you to revise your annual targets, and does that then filter down? How does it usually work?

Yovan, Innegex:        It's a great question. This is another area where I've been surprised. We haven’t had to lower our annual capital deployment targets due to Covid-19. We continue to move projects forward on the development side of the business and we move through diligence on the M&A side of the business without too many barriers. We continue to find opportunities to create value for our shareholders, but we have to use discipline and select the deals which best fit our business model and pass on others. We’ve seen a regular flow of business deals coming our way. If anything, our deal teams would like to increase those targets and expand the team.

Goldstein, CoBank:  Sean, given you have a more of a global footprint, how have you refocused Innergex’s opportunities geographically as a result of Covid? Or have you?

Yovan, Innergex:       I haven’t seen any changes to the business plan in each of the different countries. We’ve seen an uptick in activity in Chile, where our partners there are bringing in more and more business. Our projects in France, due to the development differences in Europe, take longer to mature. In the US, our M&A deal flow seems to continue unabated. PPA opportunities are continuing. There was one month, maybe in March, where corporates took a step back, but I see them coming back into the fray.

PFR            What are one or two key trends that have emerged this year that are non-Covid related?

Goldstein, CoBank:  This is not specifically non-Covid related, but it speaks to how we are modifying our strategic plan looking forward. It is really the first time that we’ve ever seen a material decline in electrical demand. As a consequence of that, we note the accelerated retirement of more coal plants than we previously contemplated.

We think that that, longer term, this is going to have a material impact on how rapidly those generating units get replaced and with what they get replaced. That's one trend that we see is going to have a real impact, and we think a favorable impact, for CoBank in our interest in supporting the building of renewable plants.

The other is that most of our sponsors, knowing that there was a phase-out on the PTCs [production tax credits], and the fact that they had milestone dates that they need to meet to continue to move these projects forward to ensure that they could benefit from full PTCs, were pushing forward on a lot of these projects. They needed to get financed. Our view is that a number of projects, for whatever reason – either the returns weren’t there, or they weren’t far enough along the development – have been put on the backburner. With the subsequent extension of the PTC step-down, as a result of Covid, we think a number of those projects that were on the backburner for our sponsors, can now come forward because now, all of a sudden, the economics on those projects come back above hurdle returns.

PFR            Do you still think we will get a record year of wind done this year?

Afenjar, Clearway:    Record year, probably not. Realistically, entering the year we were expecting $12 billion to $15 billion in tax equity investments for the year, which would have been a record year. Things are delayed. Deals will happen; it just will take more time. What remains to be seen is how tax equity investors revisit their tax appetite in light of potentially lower profits. That typically takes a bit more time for tax equity investors to translate into higher targets than it does for lending banks. Banks have reacted very quickly, based on their funding costs, and we’ve seen that right away. For tax equity, it's going to take a bit more time, but we’re going to see it, and so, the volume we were expecting for 2020 is probably not going to happen.

Wade, IFM:     There's been an increase in the regulatory risk investing in infrastructure and the political environment. A recent example is what happened with the Dakota Access Pipeline. We don’t tend to see operating projects with an injunction to stop operations. We’re not in that deal, but we’re now having to start thinking quite carefully about some of the wider implications. On offshore wind, sponsors have spent substantial development equity with still uncertain outcomes on permitting and approval processes. . NOx and SOx emissions standards, shale gas drilling… What is going to be the impact over the next few years? With the election coming up in November, exactly how are these aspects going to swing? We’re spending a lot more time on this, and there are a lot of specific questions coming in from our credit committees. Renewable energy credits continue to evolve and change.… We’ve always been quite fortuitous in the US – I've been here for upwards of 15 years now in terms of investing – with a fairly stable regulatory regime. That may be changing. That’s a non-Covid related theme, and we’ve certainly been spending a lot of time on these topics when it comes to considering credits. Over the summer and into next year, I don’t see that changing. 

Another non-Covid theme is primary versus secondary markets. We’re spending a lot more time on what the secondary market is doing, what the pricing is there, and, as a relative value investor, sometimes we can see better opportunities on the secondary side.

A third theme is that we see is some potential opportunities emerging as states find ways to raise capital and finance projects when the tax bases come under a bit more pressure over the next few years. People have been talking about it but hopefully now we will start to see a bit more support for PPP-type projects. That will mean more supply, which percolates into the power space as well given projects compete for capital. Without talking about specific projects, this is something that IFM is interested in because we see it as a way that can protect and grow the long-term retirement savings of millions of workers and like-minded investors.

Yovan, Innergex:       From a power markets and offtake perspective, we’re continuing to see preference for shorter tenors – and that’s not just on the corporate side; it’s retailers, some of the utilities – and it puts more pressure on us to evaluate the post-contracted merchant revenue curves. And they look quite attractive. So as tenors decrease, interestingly, IRRs tend to increase. We need to think about how we feel about those post-contracted revenues, and what we can do to mitigate any post-contracted market uncertainty.

PFR            A question for our two developers: What have you been seeing as far as constraints to the supply chain, and how has that filtered down?

Yovan, Innegex:        We faced issues with supply from China, Spain and Mexico. In China, tracker manufacturing was affected initially, but work resumed fairly quickly once the lockdown was over. Our Mexico-based supplier’s plant shut down for a longer period of time, and they are now having some difficulty staffing back up to pre-Covid levels. So alternate suppliers are coming into the mix. In Spain, manufacturing was stopped for a few weeks and they were able to accelerate when work started back up again. But the larger issue is that shipping has been slower, due to less being shipped. The ships were stopping in more ports to fill their load. But we’ve had no USA delivery issues related to Covid to date.

From the development perspective, we relate to supply chain constraints in the form of the availability and mobility of consultants that do hands-on, onsite development work – surveys, geotech, physical title search work. This can result in pressing development activities back, putting pressure on condensed development schedules.

Afenjar, Clearway:    In the US, for us, similarly to what you were saying, Sean, we have not seen major impacts to what we had ongoing at the time. In terms of the supply chain, a lot of the orders of modules for our projects, for example, had been placed in 2019 for safe harbor purposes. Most of the modules that we needed for our upcoming projects were actually paid for and received by the end of 2019, early 2020. So, luckily, these are not impacted. The non-safe harbor module deliveries were expected for later this year and for now, we have not seen delays. Because of the safe-harbor strategy that we had to put in place, this happened before Covid hit. And we face the same on the wind front, where we had a safe harbor strategy with turbines, or parts, that we already own for most of our projects. So, we were in a transition phase where we had this equipment strategy to safe harbor most of our upcoming projects that had been put in place before Covid. In terms of construction for renewables, for most states except New York, renewable construction had been deemed "essential", so construction could continue. There was a ban in New York for a few weeks, which was lifted at the end of May. So we’ve seen some delays in New York, but most of our projects continued construction as per their timelines.

I guess the third piece is we had to revisit collaboration with utilities because, obviously, that could not happen the way it used to. So, at first, it created delays, but the utilities have been pretty creative in doing things remotely, and sending people on the ground only when needed. They're trying to automatize as much as possible and make it remote. Overall, we’ve seen ad hoc delays when a crew had to stop because of a case of Covid or things like that and we’ve had to adapt to that, but not a major push in the US for the projects we were in the middle of building.

PFR            Brian, have those issues filtered down on financing side, from your conversations with your clients?

Goldstein, CoBank:  Fortunately, no. We certainly scrutinize supply-chain risk significantly more than we did prior to the epidemic. We also have to have a specific section of our credit application addressing that. But fortunately, as Johana mentioned, we have not seen a real impact on any of our projects causing a significant delay where we feel that we’re running up against guaranteed completion dates.

I have a question back to both Sean and Johana. One of the things I've wondered is, has, ironically, the implementation of the tariffs, which prompted diversification of your supply chains, helped you manage and mitigate the subsequent risk that we’re dealing with now, because you now have more sources to augment what you’ve already purchased?

Afenjar, Clearway:    The tariff forced us to strategize on supply chain in general. As a company, we’ve had to look at our pipeline and think about what are the different sources and providers we want to have a strong relationship with for the future. Specifically building the contract structure, for example, to have master supply agreements with key providers from whom we can supply the equipment we need for our projects, taking into account circumstances, whether it is a tariff, a delay in the supply due to Covid, or more sanitary reasons. The ability to have those relationships set up is very helpful. As we go through credit processes with banks to approve a deal, these are the things that help, because we can explain what our strategy is to have the key relationships we need for our supply chain, and for our upcoming projects. So, yes, the tariff prompted that need, which is going to prove useful for other reasons that were not expected at the beginning.

Yovan, Innergex:       Johana, you went through an exercise that we’re going through now with Trump’s executive order to secure the bulk power system. That executive order needs to mature a little bit so that we understand what countries and what equipment we’re dealing with. It is an exercise we’re going through now to mitigate supply chain risks as we are currently procuring equipment for some of our projects.

Afenjar, Clearway:    That’s a good point. A question for Brian or Matt: how are you guys looking at this? Is this a risk where you're going to request some representations from the sponsor and perhaps push on the sponsors? Are you taking a view on some projects that might be exempt or caveated from the rule, or just wait and see?

Wade, IFM:     We are in "wait and see" at this time. There was a Canadian ruling where you had to have domestic content and so there are reps that we can pull from documentation on Canadian-content deals that we’ve done. At this time, we’ve not done a deal requiring anything similar for a US project, but that would probably be a precedent we could look to.

Goldstein, CoBank:  We’re also looking at it as a deal-by-deal situation, depending upon the source of the equipment and whether we perceive heightened risk, as it may be coming from a jurisdiction that’s potentially on that list, and then we dig in more.

Wade, IFM:     I just wanted to touch on a couple of the other comments in terms of delays from a supply-chain perspective. We have had a couple of force majeure notices come in with respect to equipment delivery. It's been for non-US projects and we’re looking carefully at the implications.

Back to Brian’s point, we haven’t got anything impacting sunset dates. They're mainly renewable green-type projects where the PPAs are a little bit more lenient than what you might get on the conventional side anyway. Offtake counterparties remain constructive, accommodating, where necessary, any delays, particularly into green projects. And that’s a trend we see continuing.

Afenjar, Clearway:    We’ve seen some of that. Construction companies send notices that are not necessarily force majeure, but more a heads up that a force majeure might be happening in the future. We’re definitely keeping close contact with them to keep an eye on it.

On the cliff dates in community solar for example, which is a space we're focused on, the utilities in the major states where communities are really important have very early on issued blanket extensions to cliff dates by six months to a year to provide relief to developers right away. That was a good move.

PFR            Without giving away any trade secrets, when you're looking forward to the next six months, can you share one or two of the key geographies or sectoral opportunities that you see as the most interesting?

Yovan, Innergex:       Coal and gas retirements are certainly creating opportunities for renewables and energy storage. It’s a blend of economics and stakeholder interest in clean energy fueling the replacement of conventional generation with renewable energy. Dependable capacity from energy storage will need to be a part of the mix, as we’re seeing in markets with capacity or resource adequacy requirements that give solar and wind a lower capacity value. Adding energy storage increases that capacity value.

We at Innergex believe that energy storage is certainly going to be more and more important. We’re seeing that show up in IRPs, we’re seeing that in solicitations – sometimes as an interest, but more and more as a need – especially in certain markets like the Desert Southwest and California.

Afenjar, Clearway:    One thing we haven’t really talked about – and a theme of 2019 – is PG&E. Investors and developers were waiting to see what was going to happen in California and it looks like it is unfolding, so California is definitely going to be a place to look at.

The second is on the wind side, on repowerings. As we think about transformation and the evolution of the market, that’s another area where we’ve seen a lot of activity, and that’s a core focus for us as well, so that’s going to pick up.

Other regions in the country that have strong renewable goals, like Hawaii, for example, are places where we’ve seen business for the past few years, and it's probably going to continue to pick up. I’m curious to see about Texas and the appetite to finance projects there.

Goldstein, CoBank:  California, now that PG&E has emerged from bankruptcy, takes a large portion of the market and puts it back into play for lenders, certainly lenders that were not able to extend additional credit to projects dependent on PG&E as an offtake. A side point on that is that it encouraged lenders to take a harder look at lending to projects that sold power to CCAs [community choice aggregators] that they otherwise may not have been as eager to look deeply into. We’ve seen some real progress there on market receptivity to CCAs generally, and certainly ways to structure around a non-investment grade CCA, but incorporate credit metrics that provide some comfort.

We stayed away from ERCOT but we’re starting to see a number of projects that we’re looking at selectively, because it is certainly a market that continues to grow, given the industrial base. Longer term, that growth may moderate as energy demand is impacted through this Covid period. But there's a real need for certain types of assets, particularly peaking assets. The intermittency of a big portion of ERCOT’s load really requires that, and we’re seeing some real opportunities there. But for CoBank, we’re not really looking at large combined-cycle opportunities. An interesting area that we’re starting to see emerge, or anticipate emerging, is a lot of development in the SERC market, where we saw a lot of resistance from a number of utilities to enter into renewable energy contracts. They are going to be driven by, actually, the economics, going back to Sean’s point. The fundamental economics of solar and wind plus storage is becoming compelling, and even though a number of the Southeast utilities have significant investments in existing fossil fuel plants, some of which are not near the end  of their depreciated life, they're recognizing that they really aren’t as competitive, economically, as attractive low-cost power in the renewable space. We saw today’s announcement by Dominion with the cancellation of the Atlantic Coast pipeline, they're going to reorient growing their generating capacity towards renewables. We're going to start seeing more and more of that. The offshore wind development, again by Dominion’s VEPCO subsidiary, you're starting to see more and more, even though it's not being mandated by RPS or competitive market dynamics. The fundamental economics of the cost of generating renewables is going to start creating inroads in markets where preciously we haven’t seen a lot of activity.

Wade, IFM:     We’d seen a lot of more developer initiatives in Ercot and some interest in call options, heat rate call options and other structures, at pricing levels that indicate viability for financing, given intermittency, to the renewable build-out down there. We haven’t taken anything forward, but that’s certainly an area, after a couple of years, that we may start to think more carefully about viability for financing.

Battery storage has become commercially proven. We’re looking at those types of deals as an opportunity for us going forward as well. Looking a bit more at the long term, given the retirements and balancing needs, a lot of the existing conventional assets, even though they're not really producing much from a gross margin perspective, they have relatively high capacity factors and strong operational metrics. We continue to remain focused on the respective residual values of assets.

PFR            Are there one or two data points or key metrics that you're following closely that you can share?

Yovan, Innergex:       I'll start with PPAs. I addressed tenors earlier, but pricing continues to drop. Brian mentioned Ercot as a strategic market – it's a market where transmission can be challenging, and so not all projects look attractive. But what we’re seeing in terms of pricing is a continued race to the bottom. But near-term merchant pricing is high. So, it's dealing with that gap. How do you close the gap? And that’s what makes hedges in Texas a little more attractive, because those hedge prices are so much higher. What we’re going to see with the step-down of the PTC is higher pricing, but I don’t think it's going to align well with near-term merchant pricing. That’s more of a one-to-three year problem. And then five years and beyond, I'd think it will improve.

In terms of project finance, we’re seeing terms tightening, more recourse in deals. There is certainly a liquidity premium that’s causing deals to be priced upwards on the debt side. The bid/ask spread in M&A hasn’t changed much yet, but deals are pausing, or taking longer to execute. Some deals have been withdrawn from the market due to Covid.

Goldstein, CoBank:  The differential between PPA prices that we’re seeing and expectations of where merchant prices will be – it’s been very challenging for us as we look at that, and then look at certain transactions that have incorporated a merchant tail. What is that value and where will avoided costs go? And how does that also tie in with the continuing decline curve of the levelized cost of energy for the technology? Every time we think it can't continue to decline as quickly as it does, it continues to. That influences every participant’s view on where power prices will be 15 years from now. And there is a gap there.

Afenjar, Clearway:    For me, we’re looking at the build-up of old pricing, so, of course, one thing we make sure we pay close attention to is the level of rates in Libor and swaps. On top of that, the premiums, depending on the asset class and the investors. The premium for utility-scale versus community solar is one thing we pay close attention to, and then what tax equity is looking for, which hasn’t changed much. It might change. Same on the cash equity, again, where it hasn’t changed much.

Wade, IFM:     What we’re tracking is reserve margins in many of the markets. The sponsors are generally doing a good job in terms of availability, plant operations and have seen strong capacity factors for some conventional assets.  But currently, gas prices are low, demand is low. We’re asking sponsors how are they managing liquidity? What are we looking at 12, 18 months out in terms of an improvement? Their ability to capture some volatility in certain power markets has been relatively successful, but we’re starting to see those peaks now flatten out. What are we tracking with regard to reserve margins in individual power markets? As an institutional investor, we’re looking at underlying rates and their trends. Double-B spreads, single-B spreads. What's happening with respect to other areas of the infrastructure market, particularly on midstream, as we assess relative value.

PFR            Times of crisis are when your relationships in the industry really pay dividends, including with financial and legal advisers. Starting with the investment banks, what sets the best apart from the rest?

Wade, IFM:     With respect to banks and agent banks that we deal with, it's been expeditious information flow. It resonates well with our credit committee and portfolio management colleagues that, when you go into February, March, April, and something like Covid, that we have access to the borrower relationships and we’re getting updates in terms of liquidity, covenant compliance, etc. Those relationships and that communication is very important. If you're looking for something that sets one bank apart from another bank, it's their ability to reach out to investors, lenders, and ensure that we get our questions answered relatively quickly. That was pretty key in March through April.

Goldstein, CoBank:  When we look at a transaction and we look at either the sponsor or capital providers, we’re all looking at balancing risk and return within different segments of the capital structure. The most effective law firms and advisers or lead lenders recognize that we’re coming up with a balance between those different perspectives, so that each party is getting the appropriate risk and return. It is an art as much as a science, finding those firms that have the ability to broker a balance between those disparate perspectives. Sometimes it is critical, particularly as we move into a market with dislocation. How do we continue to move transactions forward and strike that balance? You need experience and knowledgeable advisers or counsel who recognize that one can't make one type of capital provider think like someone else.  We need to find a way to balance that, either through reserves, cash flow sweeps, contingent capital, etc. There are ways of managing that balance and perpetuating that balance to move a deal forward that not every adviser or law firm can help implement.

Yovan, Innergex:       I would generally say that execution experience and knowledge of precedent deals in the market, along with good networking with major players and financiers, sets a financial adviser apart from the rest.

Afenjar, Clearway:    On the law firms, I fully agree, and what has helped, and always helps, regardless of Covid, is a counterparty that can be knowledgeable of precedent and at the same time commercial, to help find solutions, and be efficient. That’s key for us from a law firm.

Wade, IFM:     We have been around some amendments / waivers and we look for the financial adviser that can be constructive in the negotiations with respect to the borrower. There are a couple of law firms and financial advisers that have been constructive, demonstrated good market knowledge in terms of the liquidity and long term capital issues that we’re solving for. Bringing that market and industry knowledge to support valuation materials and conclusions are also key attributes we look for.   Those are the advisers that have set themselves apart.

PFR            Have you had any examples in this year and during Covid where a previous strong relationship has helped you get something over the line, that otherwise may not have happened?

Afenjar, Clearway:    On the capital markets front, we value relationships and we value the repeat nature of relationships. When a transaction has worked well, and if we have a transaction that is similar, we push to be efficient and work with the same counterparty. It helps in general, it helps in times of crisis, of course, and so we definitely promoted that during Covid.

Yovan, Innergex:       From an offtake perspective, we’ve already addressed the fact that moving meetings from the office to video-conferencing has been rather seamless. What has been challenging is moving into new markets and creating new relationships. With conferences on hold, networking is suffering. Having relationships with buyers who are active in multiple markets has been helpful. Those relationships are typically corporates, large retailers and banks. The utilities are a bit more difficult to access in this environment in terms of new market entry.

Goldstein, CoBank:  As opportunities have come in, we have tried to prioritize our strongest relationships to try to ensure that we can be there to continue to support them. We’ve also been approached by new opportunities. We did have the opportunity to work on one of Sean’s deals, and in that case it's really identifying opportunistically where we can get involved with a new sponsor who has a deep enough pipeline that we see an opportunity for repeat business, and establishing a relationship that can be built on, particularly since we can't really continue to meet outside of a transaction in a Zoom call. This provides an entrée to get to know each other, and then hopefully build on that down the road.

Wade, IFM:     All of our sponsors are pretty well clued in from a regulatory perspective as well, so their insights are valuable, in addition to what we get from the financial advisers and lenders’ counsel. I have to be honest, there's a little bit more focus now, certainly from the credit committee, on cash-at-risk and equity checks in that first-loss layer. Where exactly – what fund – has this potentially been coming out of, if it's a PE sponsor? If it’s a strategic, what direction is that going in? Those are the big items of focus. How communicative have those relationships been, so that we understand what risk we’ve got and how we're positioned from a liquidity perspective.

PFR            On the issue of power markets, what is going to happen in PJM? How are you viewing it?

Goldstein, CoBank:  We don’t really have a clear view of how things are going to evolve. Most of the opportunities that we see coming are without the benefit of a contract. The cash flows we expect will have some merchant exposure, some new-build renewables, some gas plants. We are also involved on midstream, so we’re following the evolution of that aspect in the Northeast and in the Midcontinent [MISO] market. But we’re very cautious, and we’re being very selective in expanding our exposure area. It will really be driven primarily by sponsor and by particular asset, and whether it has a certain dynamic that we can ultimately get comfortable with.

Yovan, Innergex:       PJM is an important market for us. We were recently successful with our Hillcrest project closing financing and starting construction. Going forward, we need to protect that asset. The capacity market is an important piece of the revenue stack, and so we’re following policy development very closely. We believe we’ll be able to make it work, whatever the outcome. But we are doing what we can to push policy in a favorable direction in the states we are active. Every market has its challenges, but we believe PJM’s long-term fundamentals remain strong due to its market size, aging infrastructure and significant corporate interest for renewables.

PFR            I wanted to end by looking at political risk. How are you planning for the election? Does that have any effect on how you look ahead to 2021 and beyond?

Yovan, Innergex:       This is a tough one. While Innergex is non-partisan…

PFR            You don’t have to say who you'll be voting for!


Yovan, Innergex:       We'll certainly not be saying that. Innergex is non-partisan and works collectively with decision-makers of all parties to optimize the returns for our shareholders. The November 2020 US presidential election will have a significant impact on global energy markets, particularly international trade and climate policies in the US. Innergex has thrived under the current administration. With a new administration, it could bring positive change and new opportunity, coupled with potential changes in the makeup of Congress. Whether we see a new administration next year or not, we anticipate continued growth for renewable energy based on its ability to compete in energy markets, as we’ve seen through the current administration.

Goldstein, CoBank:  We are having a relatively robust year of flow in activity under the current administration. Just to reinforce Sean’s point, we think that the fundamental economics of the different generating technologies will ultimately drive the markets in certain directions, irrespective of who is ultimately elected in 2020. Certainly, there may be more opportunity under a change in administrations, but again, our business plan is predicated on the current environment. It's not really going to change until after the election. We see that as potential upside.

Afenjar, Clearway:    Irrespective of the administration we’ve had over the past few years, we've had a lot of deal flow. We’ve been very busy. Certainly, to your opening comment, certainty for business is important, and regardless of the administration, regardless of the political situation, it is important to have certainty of regulations and rules that apply for investment in general.

It's true for emerging markets, it's true for the US, and so this is absolutely key, regardless of the administration. In renewables, a lot of the policies that have helped this industry have been put in place a while ago, some of which are winding down. There's a framework for this industry that is there and that has helped and it will continue to help until it winds down, but certainty is extremely important.

Wade, IFM:     From a financing perspective, not just with respect to the power space, but on the energy side generally, the uncertainty of permitting is something that has heightened. It's something we’ve had to spend a lot more time diligencing in the last couple of years. Some level of clarity would be helpful. Dakota Access which I referenced before is a case in point, with that decision yesterday. It's the first time in my career that I've seen an operating project on this scale levelled with an injunction, and the implications for a multi-billion-dollar project are huge. So, yes, clarity across the board, FERC and PJM interaction, NEPA permitting, the courts' interaction with the Army Corps of Engineers are all examples and impacting diligence and project financing.

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