A little finance insight from a transaction overview of Cross-Sound Cable LLC

From S&P Global Ratings

In August 2015, Argo Infrastructure Partners placed $120 million of private placement debt to fund a portion of the acquisition of the Cross-Sound Cable project. This undersea cable project transmits power from renewable-rich New England into Long Island, New York, New York, which has historically faced both gas and electric transmission constraints. The issuance, due in 2032, has a weighted average maturity of about 10 years and was issued at a coupon of 3.79%.

Project Description Cross Sound Cable is likely to be a critical infrastructure asset during the coming decades. The State of New York has made renewable development a primary policy goal under its Clean Energy Standard and is implementing policies that are flexible enough to incorporate transmitted green energy to attain carbon reduction goals. This has special value on Long Island, which has faced some supply constraints.

In addition, its installed generation base remains primarily inefficient with an average weighted life of over 30 years. The cable originates in New England, which has an abundance of renewable power due to its vast hydrologic and wind resources, as well as its own regional carbon reduction policies that date back more than a decade. The cable is bi-directional, and, in addition to transferring renewable energy, helps promote grid stability. The 24-mile cable transmits about 330 MW of power, and is contracted with the Long Island Power Authority (LIPA) through 2032 (also the maturity of the debt in question). It earns a fixed price for more than 95% of its capacity.

Scoring summary
This transaction received the strongest Green Evaluation score – E1 on our scale of E1 (highest) to E4 (lowest). This reflects strong scores in Transparency and Governance, as well as substantial carbon savings resulting from the displacement of fossil fuel based generation with renewable power. The financing also achieves a strong overall Environmental Impact score due to the entirety of the bond’s proceeds being allocated to a qualifying green project (and not to general corporate purposes).

Rationale:

• All funds raised were allocated to the acquisition of the transmission cable project, which we view as a renewable project. There are contractual protections in place to promote proper use of funds based on the project finance structure.
• The cable transmits renewable energy from New England to displace largely carbon-based electric generation in renewable resource constrained Long Island, resulting in a strong Mitigation score of 91.
• Transparency and Governance scores are supported by a robust project structure that governs the use of cash in the deal, as well as higher level commitments

For the full six-page report: spglobal.com/ratings