Areva has proved that financing nuclear industry projects can be an attractive prospect for the banking sector, Jérôme Guttieres, vice president of the French group's financial operations and treasury department, tells World Nuclear News.
Areva has finalized a project financing transaction for Société d'Enrichissement du Tricastin (SET), which owns and runs the Georges Besse II enrichment plant. The company said on 30 June it has arranged a loan of €650 million ($888 million) over ten years with support from a group of ten international banks. The scheme enables Areva to benefit from favourable financing conditions, said Guttieres, whilst retaining access to cash generated by plant activity. It also makes it possible for Areva to diversify its sources of finance without any impact on the average duration of its debt.
The ten banks are Banco Bilbao Vizcaya Argentaria (BBVA), Bank of Tokyo-Mitsubishi (BTMU), BNP Paribas, Crédit Agricole Corporate & Investment Bank, Crédit Industriel et Commercial (CIC), HSBC, HVB-Unicredit, Natixis, Santander and Société Générale. Allen & Overy and Herbert Smith acted as legal advisers to Areva and the lenders, respectively.
Guttieres said the scheme is innovative in three ways.
It is first of a kind structured financing of a nuclear-related activity and asset, with limited recourse on the borrower during the construction phase and transfer of the operational risk to lenders post-completion. Limited recourse means the borrower remains liable for certain risks that the lenders are unwilling to accept. Such financing typically requires a special purpose entity, but that it not true for Areva's scheme because SET is an existing legal entity which owns and operates the plant, as well as the borrower under the facility.
"It is worth noting that this entity [SET] is actually staffed, and not a shell company hosting contracts," Guttieres said.
It is senior secured financing - debt that is paid first, before other debts, in the event of a default - with features that include negative pledge on assets, pledge of accounts, contracts receivables, insurance proceeds, among others.
And despite its project finance-type financing structure, Guttieres said, the scheme is also compatible with the Areva group's cash-pooling mechanism - of which SET, like most Areva subsidiaries, is part. Cash pooling, common to large corporations, is the optimization and use of surplus funds of all the companies in a group in order to reduce external debt and increase liquidity, which is essential from a credit rating perspective.
The loan – executed on 13 June, with the first funds received on 26 June - is amortizing, with a six-year average life, resulting from a sculpted amortization profile, Guttieres said. That means the repayment profile is based on the cash flow profiles generated by a limited number of contracts of the portfolio that account for a significant part of the project, and which were disclosed to the lenders, Guttieres said. Areva has not disclosed the interest rate.
Areva has taken out the loan, he said, for four main reasons: to demonstrate the bankability of nuclear assets - without government support - and create a precedent for other similar transactions in the sector by educating the market; to highlight the attractive nature of the enrichment business from a financing perspective; to promote one of Areva's key industrial assets; and, to a lesser extent, to diversify Areva's financing resources with attractive conditions - 90% of Areva's gross debt is issued under senior unsecured corporate bonds.
At €650 million ($888 million), the new structured financing arrangement accounts for slightly less than 10% of Areva's gross debt, most of which has been raised on the debt capital markets, Guttieres said.
Areva's senior management, finance and operational divisions have long been investigating the potential of the nuclear industry to attract structured finance, Guttieres said, all the more so since the group accessed the debt capital markets for the first time in 2009. SET's shareholders and Areva's governance body were involved in the process and unanimously approved the transaction, he said.
The new arrangement is not a public private partnership, Guttieres said, but is more akin to private infrastructure financing.
The George Besse II enrichment plant provides uranium enrichment services to its clients, mainly via long-term contracts, certain of which have fixed or escalated prices and fixed volumes, therefore demonstrating the cashflow stability required for project financing in the energy and infrastructure sectors.
The uranium enrichment plant is attractive from a financing perspective because, as a business model, it is somewhat similar to a gas pipeline or an LNG train, Guttieres said. Services contracts can be signed over long-term periods, and prices and volumes can be contractually locked, therefore enabling the enrichment business to generate significant and predictable cash flows, with a high margin of earnings before tax, depreciation and amortization, he said.
The loan will be used to refinance a minimal part of Areva's current capital allocation in the asset, Guttieres said. Areva will remain by far the largest stakeholder via shareholder loans and equity contribution in the plant, he said. Then, the refinanced portion will be used in accordance with Areva's planned objectives for general corporate purposes.
Areva is the plant's main shareholder through 88% indirect ownership and the remaining 12% is owned by minority shareholders. In addition to the external bank debt financing - which accounts for about 15% of the plant's capital structure - Areva and SET's minority shareholders have contributed (or will contribute) junior capital in the form of subordinated debt and equity, Guttieres said.
The group says the ramp-up of the plant - the construction of which began in 2006 - continues in line with the original schedule, with an installed capacity of 84% as of the end of May. When running at full capacity, from 2016, the plant will be able to produce 7.5 million separative work units per year, which Areva equated to the demand from 70 reactors.
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by World Nuclear News