Among the most attractive financing options for private wind developers is to issue
taxable fixed rate bonds. Developers use the proceeds from a taxable fixed rate bond in
combination with equity to pay for the development costs of the project, with the equity
portion maximized. The fixed rate bonds will:
- have a minimum 1.00x debt service coverage ratio required for the life of the bonds;
- be secured solely by a Power Purchase Agreement with a credit worthy utility; and
- be unrated and, as a result, will be placed using a 144a Private Placement.
These agreements are typically for 20 years and consequently, the bonds will have
a 20-year amortization. The borrower has the option to prepay the bonds after the
tenth year, generally without any penalty. The interest rate on the bonds will be
fixed for their entire life and will be priced at a spread between 220 and 250 basis
points above the United State 10-year Treasury note. A mortgage-style level annual
debt service can be created; however, a tiered debt structure may also be used to
correspond to varying power purchase prices and government incentives.
With a taxable fixed rate issue, developers are eligible to receive the government's Production Tax Credit as well as MACRS accelerated depreciation. A debt service reserve fund equal to the maximum annual debt service will be funded with bond proceeds.
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