* Spanish energy firm’s new strategy comes under scrutiny
* Reclassification of bonds happened on settlement date
* Investors question Abengoa’s official debt figures
* Bond and commercial paper maturities approaching
By Robert Smith
LONDON, Nov 18 (IFR) - When Abengoa unveiled its “Abengoa 3.0” strategy to investors at the start of September, the Spanish clean energy firm promised a “game-changer” that would reduce its cost of capital and boost its equity valuation.
Instead, the shift in strategy fostered greater scrutiny of the company’s Byzantine accounts, leading to an all-out market rout at the end of last week that saw Abengoa’s share price tumble 66% over two days and its 500m 5.5% 2021 bond spike to double-digit yields.
This forced Abengoa to schedule a lengthy conference call on Monday morning to regain the market’s confidence. While Abengoa’s bonds have recovered substantially, none are bid above par, according to Tradeweb prices.
And with plenty of debt maturing soon, Abengoa might have picked the wrong time to test the bond market’s patience.
Management explained on the call why the recent Green bond had been classified as non-recourse debt despite benefiting from a corporate guarantee, but faced myriad further questions on how various liabilities are treated on its balance sheet.
“The more they open the door on their financials the more questions there are,” said an analyst at a hedge fund.
Abengoa’s CEO Manuel Sanchez Ortega said in an interview with IFR on Monday that last week’s sell-off was entirely driven by the “miscommunication” on the Green bond’s classification.
“There is nothing wrong in the communication of Abengoa 3.0, the market understands what we are trying to do,” he added.
Abengoa 3.0 is the culmination of the energy project developer’s shift to an asset-light model, separating the company into three entities: Abengoa SA to handle its main functions, Abengoa Greenfield to finance the early stages of projects, and Abengoa Yield to hold operating assets.
Abengoa owns just over 64% of US-listed Abengoa Yield plc, a YieldCo structure that farms off operating assets into a listed entity that is run for dividends.
Cracks began to appear in the strategy in early November, when Abengoa Yield had to ditch plans to sell an unrated euro-denominated bond issue after resistance from European investors, forcing the company to hastily rejig its debut bond deal to target the US dollar market.
But it was Abengoa Greenfield and not Abengoa Yield that triggered last week’s bout of jitters.
Greenfield sold a 500m-equivalent Green bond in September, which will finance the early stages of its projects.
The debt benefits from the same guarantees as Abengoa’s existing bonds, so investors were surprised to learn during the company’s third quarter results last week that it would be classified as non-recourse debt.
This flies in the face of the traditional definition of non-recourse debt, which usually has no claim on the parent company.
The bond’s offering memorandum actually stated that Abengoa did not intend to classify the bonds as non-recourse debt on issuance, but allowed it to “reclassify” bonds in the future.
Abengoa reclassified the bond at the first available opportunity on its settlement date of September 30, squeezing the change into its third quarter accounts.
CASH OR DEBT?
Abengoa has argued that it always classifies the bridge loans of its projects as “non-recourse debt in process,” even though they typically carry corporate guarantees.
By doing so, the company is able to reduce its reported corporate leverage figure. Abengoa reported corporate leverage at the end of September 2014 at 2.1x Ebitda. As part of a greater push for transparency on Monday, however, it revealed that corporate leverage including non-recourse debt in process stood at 3.9x.
Some analysts measure leverage even higher, however. Felix Fischer at Lucror Analytics puts net corporate leverage at 5x and net corporate leverage including non-recourse debt in process at 6.8x, by limiting deductions to Abengoa’s cash available for debt repayment and its project cash.
Abengoa’s corporate leverage covenant on its syndicated loans is set at 2.5x from the start of 2015.
Investors have further issues with the company’s balance sheet. Abengoa had a 4.25bn cash position at the end of September, but 1bn of this is tied-up in a collateral account for its “confirming lines.”
These reverse-factoring facilities allow Abengoa to pay suppliers within 180 days. On Monday’s call management said they have around 2bn of confirming lines available, and normally use around 80% of them.
In contrast to Abengoa, many analysts view this as debt.
“If it looks like debt, smells like debt and feels like debt, it should be debt,” said an analyst at a UK asset manager.
In August Abengoa used the capital markets to finance Greensill Capital, a reverse factoring SPV, which priced a US$270m six-month bond at a yield of 5.75%.
The Greensill bond matures on February 17, and is one of a number of maturities facing Abengoa that month. The company has earmarked 601m for debt repayments, which includes a 300m bond maturing on February 25.
There is also a 250m 2017 convertible bond that is puttable in February. Market concerns over repayment of this bond were so strong on Friday that it was bid at a yield to put of 54% at one point, according to an equity trader.
On top of this, the company has a 500m short-term commercial paper programme. Abengoa has on average 40m to 50m of commercial paper redeeming a month, with the average maturity of the paper at 10-months.
Sanchez Ortega said that the company has more than enough cash to finance all of these potential maturities, and that all of its cash projections assume that the commercial paper will have to be repaid rather than extended.
“In the next 10 to 12 months things are not going to be like they were last Thursday and Friday,” he added.
“Things will come back to common sense.”
One thing is for certain: long term investors in Abengoa 3.0 will hope there are no more bugs in the system during that time. (Reporting by Robert Smith; editing by Alex Chambers, Julian Baker)