Abengoa US yieldco faces uncertainty as parent company opens insolvency proceedings

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Abengoa, the Spanish renewable energy company big on CSP but boasting a sizeable solar PV portfolio, last week opened insolvency proceedings that will likely see the firm become Spain’s largest-ever bankruptcy casualty.

However, the financial chaos engulfing the Spanish firm may yet spread across the pond to its U.S. yieldco, Abengoa Yield, which despite being ostensibly insulated and independent from its parent company finds itself exposed to many of the financial ripples emanating from Spain.

Abengoa Yield has a series of cross default clauses on the debt it has used to finance projects, tying the yieldco to Abengoa and, more widely, its parent’s financial health.

Further, the subsidiary purchased the bulk of its assets from Abengoa, which is also enlisted to manage the day-to-day operations of its projects. This exposure to the parent company has raised concern among investors regarding Abengoa Yield’s ability to operate independently.

Indeed, the subsidiary has made efforts to extricate itself from Abengoa this year, with former CEO Javier Garoz telling investors in early November that Abengoa Yield wants to "reinforce our autonomy from Abengoa to become a completely independent company".

Garoz, however, stepped down as CEO last Wednesday, sparking concern that the yieldco would be sold as Abengoa attempted to drum up cash to satisfy its own creditors.

The presence of cross default debt packages means it is likely that the parent company’s insolvency proceedings would impact Abengoa Yield’s project financing in South Africa, the U.S., Spain and Uruguay.

In the U.S., where the subsidiary has its most profitable renewable energy assets, The U.S. Department of Energy (DOE) can restrict cash distributions from its Mojave and Solana solar projects in the event of an Abengoa default.

However, in Spain, the insolvency law includes a two-year examination period, during with time the authorities are likely to look back at intercompany transactions between Abengoa and Abengoa Yield since the latter’s creation via IPO in the summer of 2014.

Since that date, the parent company has sold a number of renewable energy projects to its yieldco, which included a recent offloading of two Spanish solar farms, backed by a bridge loan issued in the U.S.

According to a report by Bloomberg, Abengoa Yield is working with JPMorgan Chase & Co to identify a buyer for its parent company’s stake, which amounts to 47%.

Financial meltdown for Abengoa

Last week, shares in Abengoa plummeted 54%, with bonds demoted to junk status after it emerged that Gonvarri, a subsidiary of Gestamp, pulled out of a plan to invest $371 million in the company. Abengoa’s market value duly slumped by around $500 million, triggering the insolvency proceedings that give the firm just four months to find a buyer or reach an agreement with its creditors.

"The company will begin the negotiating process with its creditor with the aim to reach an accord to guarantee the financial viability under Article 5 of the Bankruptcy Act, which the company intends to request as soon as possible," read an Abengoa statement.

Should Abengoa fail to reach an agreement, it could become Spain’s largest ever bankruptcy casualty, with as many as 24,000 jobs – the majority in Spain – at risk. According to Reuters, lenders both domestic and international are exposed to Abengoa’s fortunes to the tune of $21.4 billion, including financing for projects.

The firm has been bedeviled by high debts for the past 12 months, but this summer saw the situation intensify as debts mounted and the company’s market value plummeted. Debts currently stand at more than $9 billion.