by Peter Kelly-Detwiler - Storyteller in Residence
On August 16th, Husch Blackwell Partner (and TREIA board member) Chris Reeder hosted TREIA’s fifth webinar of 2019, featuring a conversation with two executives of the North American Development Bank (NADB): Acting Managing Director Dr. Calixto Mateos-Hanel, and Chief Environmental Officer Salvador Lopez Cordova
NADB was established in 1994 with a mandate to include the development and finance of environmental projects along the U.S. – Mexican border. The bank is owned equally by the governments of Mexico and the United States, with an initial capitalization of $405 million ($202.50 million from each party). The NADB also has callable capital of close to $2.3 billion that it can access if necessary.
That kind of financial firepower has provided the bank with the ability to leverage those resources and support nearly $2.5 billion in grants and loans since the bank’s inception, ultimately leading to over $8 billion in various infrastructure investments.
Supporting Environmentally Beneficial Projects On the Border
The NADB’s mandate allows it to offer loans and grants (in dollars or pesos), and technical assistance for projects on both sides of the border, extending from 300 kilometers (186 miles) south to 100 kilometers (62 miles) north of the divide. Grants make up a small portion of the portfolio, and are normally limited to communities where debt financing is not an option, while technical assistance may involve final design, financial closing, and procurement activities.
The majority of the bank’s effort is dedicated to project lending, with competitive fixed (LIBOR plus 150 to 300 basis points based on level of project risk) or floating rates supporting up to 85% of an undertaking’s total cost. Activities financed cover numerous sectors related to the environment, including: water and sewage; industrial and hazardous waste; air quality; clean and renewable energy; and energy efficiency. Projects in the clean energy sector include solar, wind, biofuels, biogas/methane capture, hydro, and geothermal.
The Lending Process
The lending process typically involves the following steps:
The project developer/borrower submits an initial request for financing
The NADB reviews the project scope and cost, followed by a financial and credit risk analysis
The project, if deemed attractive, is then approved by internal committees and certified by the Board of Directors
This is followed by a due diligence review, leading to a closing
The project then moves to the implementation phase, with the disbursement of loan proceeds
Finally, the project undergoes ongoing monitoring to ensure compliance with the relevant environmental laws and to determine that the expected outcomes are being achieved
Consistent with its mandate, the Bank certifies that the project is technically viable, financially self-sufficient, will yield measurable environmental or health benefits, and will contribute to sustainable development along the border region. NADB certification provides a useful seal of approval that improves the potential of the lender to access larger syndicated loans among multiple financing entities. For renewables, in particular, the loan duration of up to 25 years is consistent with the lengthy lifespans of potential wind and solar projects. With many banks preferring shorter terms, NADB often steps in to syndicate the support.
An Option for Financing of Renewables
While the majority of funds to date have been funneled into the environmentally critical wastewater treatment sector, the renewable industry has also garnered its fair share of capital. To date, the NADB has supported a total of 17 solar projects with a combined nameplate rating of 463 megawatts (MW), 14 wind developments totaling 2,091 MW, and two relatively small biogas projects.
A number of renewables projects have been financed on the border in Texas. These include a $31 million dollar loan to the 10 MW Bryan Solar Park and $40 million loan to the 39.6 MW Alamo 4 Solar Park. The Texas wind industry has benefited as well, with $220 million to support Duke Energy’s 200 MW (each) Los Vientos 1A and 1B wind projects and almost $33 million of NADB loans supporting the 149 MW Rocksprings Windfarm endeavor.
Energy storage projects tied to renewables also fall within the NADB financing mandate, though no applicants have come forward yet for funding.
In addition to the Texas developments, the Bank has financed numerous renewables projects, especially in California. With preferable terms, lengthy financing, and a breadth of experience, the NADB may be just the financial partner developers along the border are looking for.