Suzlon Considers Foreclosure on Illinois Wind Farm

Suzlon Energy Ltd. (SUEL), the Indian wind-turbine maker in default on $209 million of bonds, may take over one of Illinois’ biggest wind farms if it’s unable to collect a loan it made for the project.

That would stymie two years of efforts by the cash-strapped manufacturer to recover money it needs to pay its own creditors.

Suzlon, the fifth-biggest turbine maker, said this week it expects to recover about $90 million, less than half the amount it provided to Edison Mission Energy’s Big Sky wind farm in 2009 to finance a deal for 240 megawatts of machines. Bankrupt Edison Mission is in talks with Suzlon to trade its ownership in the farm in exchange for waiving the $228 million loan due in October, said the Irvine, California-based company.

“If a restructuring of the loan or a sale effort is unsuccessful, Suzlon may foreclose on the project,” Edison Mission said in an e-mail this week.

The plant doesn’t have a long-term buyer for its power and sells at spot prices into the regional U.S. electricity market. It may not earn a minimum acceptable rate of return at current wholesale electricity prices, said Amy Grace, a New York-based wind analyst for Bloomberg New Energy Finance.

“My guess is that Suzlon doesn’t want to be a long-term operator,” Grace said by e-mail. “They’d rather resell the asset.”

“We are in discussions with Edison to find a solution,” Suzlon said today in an e-mail. “We would not be able to share specifics due to commercial sensitivity and confidentiality of the matter.”

Cash Needed

Suzlon needs cash to stanch losses after running up debt through acquisitions before a global slump in turbine prices. It’s seeking an extension from bondholders after committing India’s biggest convertible bond default in 2012 followed by a 95 billion-rupee ($1.5 billion) debt reorganization with lenders led by the State Bank of India last April.

It’s also trying to refinance a 750-million euro ($1 billion) loan due for renewal in August that was provided to its German unit by banks including Deutsche Bank AG. Kirti Vagadia, group head of finance, told analysts this week that Suzlon is speaking to other lenders to refinance that.

Vagadia said in an interview on Feb. 14 that Suzlon wrote down the value of Big Sky by 2.5 billion rupees. “Primarily this is because the electricity price in the U.S. remains where it is for many quarters,” he said.

Suzlon and Edison Mission, a unit of Edison International (EIX), have been wrangling over repayment of Big Sky’s loan since at least September 2012, when the Pune-based supplier filed a lawsuit in New York claiming it met the conditions necessary to demand early repayment. The issue was complicated when Edison Mission filed for bankruptcy three months afterward, citing lower energy prices. Princeton, New Jersey-based NRG Energy Inc. (NRG) agreed last October to buy most of Edison Mission’s assets.

Big Sky “is one of the assets we’re acquiring,” NRG spokeswoman Karen Cleeve said in a Feb. 18 e-mail. “However, Edison Mission Energy has the ability to sell the asset before we acquire.” NRG won’t be responsible for any of Big Sky’s liabilities as it is a non-recourse project, she said.

Project Details

If Edison Mission and Suzlon don’t agree on a sale of the farm, Big Sky will need to arrange financing to repay the loan in October or extend its maturity, Edison Mission said in a Nov. 8 filing.

“Edison Mission Energy does not intend to make an investment in the project and is under no obligation to do so,” it said.

As of Sept. 30, the loan amount outstanding was $228 million with an interest rate of 3.94 percent. Edison Mission’s investment in the project consists of $451 million of assets and liabilities of $369 million.

Most wind farms sign 20-year power sale agreements with a utility to lock in prices and secure revenue streams. Big Sky doesn’t have one and sells its output on the spot market in the 13-state PJM Interconnection LLC grid, Edison Mission spokesman Douglas McFarlan said in a Feb. 18 e-mail.

The average 24-hour price near Big Sky last year was about $35 a megawatt-hour, according to data compiled by Bloomberg. Including tax credits and a government clean-energy cash grant, Big Sky may have earned an average of $67 a megawatt-hour last year, BNEF’s Grace estimated.

The project probably needs to earn $80 a megawatt-hour on average over its lifetime to meet a 10 percent hurdle rate, or the minimum acceptable rate of return for an investor, she said.

Suzlon, as a lender, doesn’t have a claim on Edison Mission’s assets. Its loan is secured by Big Sky’s assets including the site’s leasehold mortgage and a cash reserve account that monthly receives a third of the project’s distributable cash flow when available, according to Edison Mission.

Source: Bloomberg