Abengoa Yield's Projects at Risk of Default If Abengoa SA Does

  • Assets `not potential collateral of any obligation at Abengoa'
  • Abengoa Yield seeking waivers to remove cross-default clauses

Abengoa Yield Plc’s Mojave and Solana solar farms in the U.S. Southwest are both producing electricity and generating revenue to pay the debt incurred building them. Yet they’re still at risk of default, along with three other solar and wind farms owned by the company.

The reasons can be found in the loan terms, and in Spain, where Abengoa Yield’s parent company, the troubled Spanish renewable energy developer Abengoa SA, is seeking protection from creditors.

Those deals include language that may trigger defaults if Abengoa fails to meet its obligations, a possibility that’s looking likely. Abengoa Yield is already talking to the lenders that financed the five projects, seeking waivers to “eliminate” these cross-default clauses, Marian Ariza, a spokeswoman, said by e-mail Friday.

“These assets are not potential collateral of any obligation at Abengoa level,” she said.

The uncertainty regarding the status of these loans is part of the reason Moody’s Investors Service has a negative outlook on Abengoa Yield. The company lowered Abengoa Yield’s corporate family rating to B1 from Ba3 on Thursday, citing high debt and market conditions that may make it tough to raise capital. Neither rating is considered investment grade.

Liquidity Concerns

“If the lenders decide to exercise an option should Abengoa default, that would make the liquidity position of the yieldco tighter,” Natividad Martel, a Moody’s analyst, said in an interview Friday.

Abengoa Yield is considered a yieldco, a holding company formed by Abengoa to buy power plants. Revenue from selling electricity helps fund more acquisitions and dividend payments to investors. Solana and Mojave are expected to account for about 26 percent of Abengoa Yield’s $287 million of projected cash flows available for distribution in 2016, Martel wrote in a research report Thursday.

If the cross-default provisions aren’t resolved, it “could prevent project level distributions from being paid” to Abengoa Yield, she said in the report. And while this possibility is “extreme and unlikely,” it could also “lead to an acceleration of those projects’ indebtedness.”

Solana and Mojave were both financed by the U.S. Federal Financing Bank, and received a combined $2.65 billion in loan guarantees from the U.S. Energy Department. A spokesman for the Energy Department declined to comment on whether Abengoa Yield has contacted the agency, and an official at the bank didn’t return a call seeking comment.

The other Abengoa Yield projects at risk under the cross-default terms are the Kaxu solar farm in South Africa, the Cadonal wind project in Uruguay and a solar complex in Spain known as PS-10/20.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE