From Funding Gap to Financing Strategy

From Funding Gap to Financing Strategy

Structuring Capital Around the Project and how a EUR 57 million acquisition became the starting point for a potential EUR 247 million financing programme.

In complex project financing, a commercially attractive opportunity does not automatically fit an available funding model. The challenge is not always a lack of capital. Sometimes, it is a question of how the financing should be structured around the project, its immediate requirements and its potential development.

This case illustrates how PBO-OBS Global Group approached precisely that challenge.

The initial requirement was approximately EUR 57 million to acquire an existing solar farm power station and increase its output capacity. Alongside this transaction, the sponsors were exploring additional acquisition opportunities that could potentially bring the overall financing requirement to approximately EUR 247 million within one year.

The underlying opportunity was substantial, but the initial transaction presented a clear obstacle: EUR 57 million fell below the EUR 150 million minimum threshold of the private financing model being considered.

The additional acquisitions offered a possible route towards that threshold. However, they remained at an early stage of discussions and potential pre-agreements with prospective sellers. They were not yet contractual commitments and could not legitimately be treated as secured transactions.

For PBO-OBS, this was not necessarily a reason to dismiss the project. It was a reason to examine the opportunity more closely.

The Challenge

A Viable Project Outside the Funding Criteria

Financing the initial EUR 57 million transaction in isolation would not meet the funder's minimum threshold. Conversely, basing a financing request on the potential EUR 247 million programme without sufficient underlying commitments would risk confusing future possibilities with the transaction that actually existed.

This required more than submitting the initial funding request. It required an understanding of how the funder assessed opportunities, what the project would need to demonstrate and whether a different capital structure could accommodate both the immediate acquisition and potential future expansion. 

The Approach                                                                 Working with the Funding Decision-Maker

PBO-OBS presented and discussed the project directly with its trusted funding CEO to explore the most appropriate potential solution for the sponsor and the underlying opportunity.

PBO-OBS advised the sponsor to consider a structured growth strategy. Rather than assessing the initial acquisition entirely in isolation, the discussion examined whether the potential future acquisitions could form part of a broader financing framework as they progressed towards viable, properly documented transactions.

The distinction was essential. The initial strategy did not assume that all the additional acquisitions would proceed, nor did it treat them as already committed. Instead, it considered how the financing could potentially evolve if those opportunities developed sufficiently to satisfy the relevant commercial, contractual and funding requirements.

From this analysis emerged a proposed structure comprising two complementary financing components – a mezzanine loan facility for the initial acquisition and a non-recourse credit facility designed around the potential future acquisitions and expansion programme, subject to sufficient contracted transactions being in place to satisfy the funder's EUR 150 million minimum requirement.

Component One                                                                    The Mezzanine Loan Facility

The purpose of this facility was to help address the immediate funding gap by providing an additional layer of capital within the proposed financing structure. This offered a potential route for addressing the initial transaction without relying on future acquisitions that had not yet become contractual commitments.

The mezzanine facility was therefore intended to help manage the project's financing requirements during the pre-income phase, including an additional six-month grace period, thereby providing greater flexibility while the project progressed towards revenue generation.

Component Two

The Non-Recourse Credit Facility

The non-recourse credit facility was the perfect solution.

Rather than requiring the entire financing amount to be drawn at the outset, the framework contemplated access to capital as additional acquisitions progressed and became eligible for financing. This could allow funding to be aligned more closely with the timing and requirements of individual transactions, subject to the facility's terms and the funder's approval.

This approach offered a potential way to accommodate future growth without treating the entire acquisition programme as an immediate funding requirement. It also recognised that each prospective acquisition would need to stand on its own commercial merits and satisfy the applicable financing conditions.

The Strategic Outcome                                Beyond the Initial Funding Requirement

The significance of this case was not simply the consideration of two different financing mechanisms. It was the decision to look beyond the immediate funding gap and examine whether the project's potential could support a more comprehensive financing strategy.

By distinguishing between the existing transaction and what might follow, PBO-OBS explored a structure that addressed both realities without overstating the project's readiness.

If the additional acquisitions progressed successfully, the overall financing requirement could potentially reach approximately EUR 247 million within one year. That remained a prospective scenario, not a confirmed commitment or completed financing outcome. Nevertheless, it provided a basis for considering how the capital structure might develop alongside the project.

For PBO-OBS Global Group, the essence of strategic project financing is not to force a project into a rigid funding model, but to use experience, relationships and structuring expertise to develop tangible solutions that can work for all parties.