Mercuria CSR Report 2020 - Flipbook - Page 37
| TRANSACTION OVERVIEW:
| THE CHALLENGE:
During construction of Broad Reach’s first set of
Historically, credit quality has been the highest
projects, Mercuria and Broad Reach worked together
hurdle for IPPs attempting to execute risk-sharing
to structure and execute a series of financial swaps
swaps. Since IPPS are typically structured as
which greatly derisked these developments. The
thinly-capitalized, single-asset special purpose
structure was unique for two reasons:
vehicles, their potential creditors have little in the
way of tangible collateral to rely upon at transaction
(1) the credit provided by Broad Reach was a
inception. Simply put: developers like Broad Reach
portfolio lien on the standalone batteries under
are eager to de-risk their projects as early as
construction; and
possible, but until those projects are developed and
(2) while ancillary services are traded in ERCOT,
running, have no collateral to post to support a large
this was for a much larger notional volume than
swap.
was customarily transacted.
Given Broad Reach’s limited liquidity, and the fact
This structure, developed internally at Mercuria
that the projects it sought to hedge were months
and Broad Reach is the first portfolio lien-based
away from being built, a novel transaction structure
standalone battery swap completed in the U.S. and
was needed to allow the company to achieve its
became a template for managing, de-risking, and
goal of substantially de-risking its projects while
financing stand-alone battery projects in ERCOT
still in their initial development stage. At the same
and other markets.
time, Mercuria required sufficient credit quality to
support a sizeable transaction.
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