On February 16, CEE Legal Matters reported that Dentons had advised a banking consortium on their EUR 155 million financing for the 103.3-megawatt Krivaca wind farm project co-owned by Serbia’s MK Group and Slovenia’s ALFI Green Energy Fund. The lending consortium consisted of Erste Group Bank, Erste Bank Novi Sad, and other banks. CEE In-House Matters spoke with Ladislav Tolmaci, Executive Director at Erste Bank, to learn more about the financing.
CEEIHM: As an introduction, please tell us a bit about Erste Group's operations in Serbia.
Tolmaci: Erste in Serbia, despite its moderate size in the banking market, is a strong player in renewables and infrastructure financing. Until the recent Krivaca financing, the Erste Group, together with Erste Serbia, has participated in four out of the five large-scale wind farms constructed in Serbia. In its portfolio is the first wind farm on the market, it structured the first cross-border renewables financing, ECA financing and IFI B Loan, and now, with other lenders, it structured the latest PPA-based Krivaca wind farm.
CEEIHM: What was it about this project that the bank found particularly appealing?
Tolmaci: With a 105-megawatt installed capacity, the Krivaca wind farm is the first major project in South Eastern Europe to be financed without a state feed-in mechanism of any kind – it is based solely on a commercial Power Purchase Agreement. The project sponsors made the right move at the right time by contracting works, equipment, power, and most of all bank financing on terms that are balanced despite the high volatility of the market.
CEEIHM: What was the most complex aspect of the financing from a legal perspective?
Tolmaci: One complex aspect, for example, was building a PPA Guarantee tranche into the credit documentation. But most of all, one must appreciate that the deal was done with two sponsors, seven lenders, a turbine supplier, a balance of plant contractors, a full suite of advisors, insurance and reinsurance providers, and a PPA offtaker. So, bringing it all together in terms of finance and project documents, intercreditor issues, and direct agreements, always against the background of uncharted waters in PPA regulations and local laws relating to cross-border lending, was a journey for which the legal teams dedicated the better part of 2022 to get it done.
CEEIHM: And how was the legal work split between your in-house legal team and your legal advisors?
Tolmaci: The initial term sheet for the transaction was prepared in-house by the banks but then the legal advisors stepped in to build the finance documentation around it before further internal review. Interacting with the turbine supplier and the PPA counterparty was a joint effort but external legal advisors drafted the documentation as part of their mandate. All solutions to legal DD findings were created in consultation with in-house teams.
CEEIHM: And why did you pick Dentons as your advisor on this matter?
Tolmaci: The Dentons international finance team from Bucharest was the lenders’ advisor on previous wind farm financings in Serbia, Romania, and neighboring markets, they have German PPA expertise in their Duesseldorf office and they are well regarded by the sponsors. With this experience, the banks appreciated the choice that they would accompany us into this new era of renewables financing in South Eastern Europe. ZSP from Belgrade cooperated with Dentons as local counsel and their good understanding of real estate intricacies and banking regulations helped a lot to bring the financing over the line.
