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Infrastructure sector attracting unconventional lenders

The Golden Gate Bridge is lit at dusk at Fort Point in San Francisco.

Marcio Jose Sanchez/Marcio Jose Sanchez/AP

A group of unlikely Canadian lenders has stepped in to fill the void left by European banks eager to deleverage and raise capital.

Infrastructure loans, unlike most bank financing, are often paid back over 20 years -- well beyond the five-year comfort zone for typical banks. This leaves borrowers with two primary options: tapping the rated bond market, or negotiating unrated private placements with big institutions.

The latter option is becoming quite popular, as proven by the new loan to Spanish group Elecnor to fund the development of its Quebec wind farm. The syndicate for the $250-million senior secured construction and term loan facility includes the likes of Sun Life Financial , Manulife , Great-West Life and Industrial Alliance . When you think about it, that makes perfect sense. Insurers have long-term liabilities and these line up well a 20-year amortization timeline.

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That's not to say the banks are avoiding this type of financing altogether. National Bank Financial stepped up to the plate in the Elecnor deal, partly because the project is based in the bank's home province of Quebec, and partly because its infrastructure team has strong relationships with some of the other lenders.

Peter Hepburn from National Bank's infrastructure finance team said this type of private placement -- with the different lenders -- is quickly becoming common for greenfield investments in wind farms, adding that we might even see it used by Elecnor again because the firm is looking to sign more power purchase agreements.

Elecnor was drawn to Canada when Hydro Quebec put out a request for proposals related to a 2000 megawatt power purchase agreement a few years back. With this project financed, the firm is now looking at other potential projects in British Columbia and Ontario.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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