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Ormat Technologies finalizes loan agreement of up to $350M under US DOE’s Loan Guarantee Program for Nevada project; commitment for $310M financing in Kenya from US OPIC
26 September 2011
Ormat Technologies, Inc.’s wholly-owned indirect subsidiary, OFC 2 LLC, and its project subsidiaries (Ormat), have finalized and signed the loan documentation for a 20-year loan for up to $350 million under a financing with John Hancock Life Insurance Company (USA). The transaction will be guaranteed by the US Department of Energy’s Loan Programs Office in accordance with and subject to the Department’s Loan Guarantee Program under Section 1705 of Title XVII of the Energy Policy Act of 2005.
The financing will support power generation from three geothermal power facilities located in the State of Nevada, which are scheduled to be built in two phases and expected to generate up to 113 MW of power. The capacity of the first phase is expected to be up to approximately 60 MW.
The second phase development is subject to the feasibility assessment of the geothermal resource, which will be performed following completion of the first phase of each facility, and fulfillment of other conditions in the loan documents.
The three Nevada-based facilities—Jersey Valley, Tuscarora and McGinness Hills—will provide baseload power through 20-year power purchase agreements with Nevada Power Company, a subsidiary of NV Energy. Construction of the Jersey Valley power plant is substantially completed, while the field development is ongoing. Commissioning of the first phase of the Tuscarora and McGinness power plants is expected in 2012.
In anticipation of the closing, Ormat had previously entered into several rate lock transactions, as insurance against an increase in the 10-year Treasury Rate, until the funding date of the loan. These transactions did not qualify for hedge accounting. While precise figures are not yet available, Ormat expects that if the Treasury Rate remains at its current historic low levels through 30 September 2011, the date on which its rate lock transactions mature, it will incur a pre-tax loss of approximately $17 million, which will adversely affect the financial results of operation in the third quarter of 2011. $4.7 million of this amount has already been recognized as a pre-tax loss by the Company in the six months ended 30 June 2011.
Several days prior to the closing of the loan for the Nevada projects, Ormat’s wholly-owned subsidiary, Ormat International, Inc., signed a commitment letter issued by the Overseas Private Investment Corporation (OPI) to provide project financing of up to $310 million, to refinance and expand Ormat’s 48 MW Olkaria III geothermal complex located in Naivasha, Kenya.
OPIC is the US Government’s development finance institution, and mobilizes private capital to address world challenges and in doing so, advances US foreign policy.
Under the agreed term sheet attached to the commitment letter, the loan will be comprised of a refinancing tranche of up to $85 million to prepay the existing loan and fund transaction costs, a construction loan tranche of up to $165 million to finance the construction of an additional 36 MW expansion currently underway, and a $60 million stand-by facility to finance an additional optional 16 MW capacity expansion, that, if exercised by Ormat, could bring the total capacity of the complex to approximately 100 MW.
The maturity dates of the construction tranche and the refinancing tranche are expected to be June 2030 and December 2030, respectively. The maturity and certain other terms of the stand-by facility will be finalized following Ormat’s decision to exercise the option to construct the additional 16 MW expansion.
Financial closing is targeted to occur during December 2011, subject to (among others) successful negotiation of the loan documentation, completion of due diligence by OPIC and fulfillment of certain conditions precedent to be agreed upon in the loan documents.
Ormat Technologies, Inc. is a vertically integrated company primarily engaged in the geothermal and recovered energy power business. The company designs, develops, owns and operates geothermal and recovered energy-based power plants around the world. Additionally, the company designs, manufactures and sells geothermal and recovered energy power units and other power-generating equipment, and provides related services.
Ormat has engineered and built power plants, that it currently owns or has supplied to utilities and developers worldwide, totaling approximately 1370 MW of gross capacity. Ormat’s current generating portfolio includes the following geothermal and recovered energy-based power plants: in the United States: Brady, Brawley, Heber, Jersey Valley, Mammoth, Ormesa, Puna, Steamboat, OREG 1, OREG 2, OREG 3 and OREG 4; in Guatemala: Zunil and Amatitlan; in Kenya Olkaria III; and, in Nicaragua: Momotombo.
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