December 12, 2014 / 3:56 PM / 4 years ago

Confusion reigns on Abengoa's yieldco sell-down

LONDON, Dec 12 (IFR) - Abengoa’s announcements around the sell-down of its stake in Abengoa Yield have left European bond investors puzzled, as the Spanish firm appears to have contradicted recent statements to a credit ratings agency.

“It looks like the company has been telling different parties different things to keep everyone happy,” said a hedge fund investor.

“They’ve said something to the ratings agencies that there is no public record of them saying elsewhere.”

The clean energy and engineering group’s transparency is already under scrutiny from bond investors. It recently reclassified a Green bond sold in September as non-recourse debt, even though the debt has recourse to the parent company through a corporate guarantee.

Abengoa owns just over 64% of Abengoa Yield plc, a company that farms off its operating assets into a US-listed entity that is run for dividends. But on Thursday the Spanish firm announced that it would sell up to 10.6 million shares in Abengoa Yield, which could cut that holding to just over 51%.

While this will improve short-term liquidity at Abengoa, several investors said that a report from Standard & Poor’s had suggested that a bigger sale was in the offing.

“The recent S&P report assumed they would sell down to below 50%,” said one high-yield bond investor. “At 51% they will not deconsolidate the yieldco’s debt.”

The 50% threshold is crucial. If Abengoa reduces its stake below this level it can deconsolidate the yieldco’s debt from its balance sheet, reducing its total debt figures.

The S&P report published on December 3 said: “We understand management is committed to reducing its stake in Abengoa’s yield company to below 50% within the next six months.”

But on Thursday, a spokesperson for Abengoa told Reuters that it had no specific timetable for the sale.

The spokesperson then told IFR on Friday that the company has discussed deconsolidating the yieldco as a future target with its ratings agencies, but reiterated that there is no firm commitment to do so in any specific time period.

An S&P spokesperson said that despite these contradictory statements, the report on Abengoa will remain unchanged as it was based on information provided in discussions with the company’s management, who then reviewed it before publication.

S&P has pegged Abengoa’s corporate credit rating at B with a positive outlook.

TERMINATED AGREEMENTS

Given that Abengoa has so much to gain from deconsolidating the yieldco, several investors have begun to wonder if there is an obstacle preventing it from doing so.

The Abengoa spokesperson said that reducing its stake further is a decision the company will take whenever it is considered appropriate.

But a bond investor said the company might be reluctant to do so due to the risk of triggering a renegotiation of the terms of its project finance debt.

In a document filed with the SEC on Thursday, Abengoa Yield said that if Abengoa reduces its stake below majority ownership, it may need to seek waivers or approvals from counterparties on its projects, such as banks or government agencies.

It warns that this could allow its project finance lenders “to accelerate our indebtedness or terminate their agreements with us”.

According to the document, Abengoa Yield had more than US$2.3bn of long-term project finance debt as of September 30.

The hedge fund investor also pointed out that dropping below 50% would reduce Abengoa’s ability to control decision-making at Abengoa Yield.

Under Nasdaq rules, Abengoa Yield is classed as a “controlled company” of Abengoa and is not required to have a majority of independent directors.

This status is lost if Abengoa is no longer a majority investor, meaning it would then need a majority of independent board members.

Only five out of 10 of Abengoa Yield’s directors are independent, but the company announced on Thursday that it is now taking the appropriate steps to ensure that the board has a majority of independent directors.

Abengoa’s longest dated bond - a 500m 6% 2021 note - traded up from a cash price of 84 to 85.50 on Thursday, according to Tradeweb, but has since fallen back down to 84 on Friday.

This equates to a 9.63% yield.

Abengoa Yield’s US$255m 7% 2019 bond issued last month has remained flat at 94.625 to yield 8.40%, according to Thomson Reuters data.

The bond has a 75bp coupon step-up if the company does not obtain two credit ratings within 12 months of issuance. (Reporting by Robert Smith, editing by Sudip Roy, Philip Wright, Julian Baker)

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