Accessing Debt Capital in a Constrained Market

1st June 2010

Andrew Buglass

Head of Power, Structured Finance

Tel: +44 20 7085 5924

Email: andrew.buglass@rbs.com

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The situation in 2009

• Dramatic increase in the rates at which banks fund their activities

• Market-wide focus on resizing balance sheets – APS, ‘Bad Banks’ etc.

• Result was a focus on domestic markets and/or key clients

• Significant decline in project finance activity from heights reached in 2007

• More deals closed in H2 2009 than H1 reflects legacy transactions finally reaching close

Source: Infrastructure Journal

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What a financing looked like in 2009 – key terms

• Onshore wind as a proxy, reflecting level of demand in the sector

• Starting margins of 250-300bps

• Significantly shorter tenors – reintroduction of the mini-perm

• Gearing levels reduced to circa 70:30

• Tighter covenant package around areas such as change in control

• No underwriting or distribution market – all transactions on a club basis

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Supply side• Lenders emerging from a period of introspection

with a clear focus on their core markets

• Reduction and stability in the rates at which banks fund their activities

• Strong liquidity in the corporate debt market is encouraging for the projects markets

• More certain access to capital for some lenders

• Launch of initiatives such as EIB Intermediated Loan Scheme targeted at UK onshore wind

So why the renewed optimism?

Demand side• Demand for financing has never gone away

• Driven in the UK by our EU targets – c.30% of electricity from renewable sources by 2020

• Target now even more challenging after 2 years of stagnation

Source: RBS

Utility credit spreads (CDS)

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Where we see activity in the UK in 2010

• Onshore wind

• Offshore wind

• OFTOs

• Biomass

• Conventional power

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What a financing looks like in 2010 – key terms

• Pricing now settled and evidence of competitive tension

• Starting margins of 200-225 bps for onshore wind

• EIB Scheme funds deployed at a discount of 75bps to the commercial facilities

• Return of more traditional tenors, though 15 years+ considered more challenging

• Gearing levels settled at c.80:20

• Covenants such as change in control still important

• Transactions will still be executed on a club basis but with appetite for greater holds – up to £80m

• Return of underwriting activity in the corporate market – the projects market is watching with interest

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How to develop a successful proposal

• Proven technology story

• Credible construction and O&M arrangements

• Strong contractual strategy

• Appropriate risk allocation and mitigation while optimising value for project

• The right off-take strategy for the project

– Ability to structure financings where debt and PPA have varying tenors

• Debt and equity aligned in seeking to determine the best solution for the project

Strong support for the right deal

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Disclaimer

The contents of this document are indicative and are subject to change without notice. This document is intended for your sole use on the basis that before entering into this, and/or any related transaction, you will ensure that you fully understand the potential risks an return of this, and/or any related transaction and determine it is appropriate for you given your objectives, experience, financial and operational resources, and other relevant circumstances. You should consult with such advisors as you deem necessary to assist you in making these determinations. The Royal Bank of Scotland plc ("RBS") will not act as your advisor or owe any fiduciary duties to you in connection with this, and/or any related transaction and no reliance may be placed on RBS for advice or recommendations of any sort. RBS makes no representations or warranties with respect to the information and disclaims all liability for any use you or our advisors make of the contents of this document. RBS and its affiliates, connected companies, employees or clients may have an interest in financial instruments of the type described in this document and/or related financial instruments. Such interest may include dealing, trading, holding, acting as market-instruments referred to herein. RBS is authorised and regulated in the UK by the Financial Services Authority.

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