Private Equity Firm Launches Financing Platform for Merchant Storage

Private Equity Firm Launches Financing Platform for Merchant Storage

Republished from Voltility | By Andrew Cavenagh

Aurelian Capital Partners, a private equity firm that invests in land and alternative real assets which facilitate the energy transition, has launched a platform to provide cost-effective financing for 100% merchant or partially contracted battery storage projects that cannot access efficient bank debt.

"There's a considerable capital reserve requirement that banks have to hold against merchant loans, which means they cannot hold this risk profitably on balance sheet," explained Tanner McNeil, New York-based Aurelian's CEO, on a recent call with Voltility.  "That will never change."

Alternative Finance

McNeil, who has a background in real estate investing, believes the market requires an alternative to regulated bank balance sheet financing, allowing developers to build and operate battery storage assets while capturing the upside that exists through a merchant revenue strategy.

Interest-only Debt

The Aurelian platform is based on a 20-year, interest-only financing with rates ranging from high single-digit interest to low double-digit interest, depending on a project's risk profile.The math, McNeil proposes, is that Aurelian's interest-only rate is accretive to developer Multiple on Investment Capital (MOIC) and Internal Rate of Return (IRR), considering the debt constant on a comparable bank loan can reach 25% annually (full principal repayment plus interest).

Greater Leverage

McNeil added the Aurelian platform has the advantage of being able to cover 45% to 55% of a battery storage project's capital cost, compared to the 25% to 35% limit that typically applies to bank debt -- thereby cutting the developer's equity check in half.

Matched with a tax equity bridge loan, developers can achieve upwards of 80% of the cost financing during the construction period for 100% merchant assets using Aurelian's capital structure. "With credit enhancements such as that offered through Ascend Analytics' EnSurance platform, Aurelian can be more aggressive. It allows us to invest more into the capital stack and at the same time, is meaningfully accretive to developers," McNeil confirmed. "Our product is akin to super-senior, matched-term financing with no repayment requirement."

It has set itself internal targets of deploying USD 250 million of such financing by the end of the first half of 2025, and USD 500 million by the end of the year.

Asset Ownership

Aurelian will also look to acquire and operate battery storage assets opportunistically. While this activity is unlikely to account for more than 10% of the firm's total investments over the next 12 months, McNeil said it could grow to 25% over time.

For the full article, click here.

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Private Equity Firm Launches Financing Platform for Merchant Storage

December 16, 2024

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Republished from Voltility | By Andrew Cavenagh

Aurelian Capital Partners, a private equity firm that invests in land and alternative real assets which facilitate the energy transition, has launched a platform to provide cost-effective financing for 100% merchant or partially contracted battery storage projects that cannot access efficient bank debt.

"There's a considerable capital reserve requirement that banks have to hold against merchant loans, which means they cannot hold this risk profitably on balance sheet," explained Tanner McNeil, New York-based Aurelian's CEO, on a recent call with Voltility.  "That will never change."

Alternative Finance

McNeil, who has a background in real estate investing, believes the market requires an alternative to regulated bank balance sheet financing, allowing developers to build and operate battery storage assets while capturing the upside that exists through a merchant revenue strategy.

Interest-only Debt

The Aurelian platform is based on a 20-year, interest-only financing with rates ranging from high single-digit interest to low double-digit interest, depending on a project's risk profile.The math, McNeil proposes, is that Aurelian's interest-only rate is accretive to developer Multiple on Investment Capital (MOIC) and Internal Rate of Return (IRR), considering the debt constant on a comparable bank loan can reach 25% annually (full principal repayment plus interest).

Greater Leverage

McNeil added the Aurelian platform has the advantage of being able to cover 45% to 55% of a battery storage project's capital cost, compared to the 25% to 35% limit that typically applies to bank debt -- thereby cutting the developer's equity check in half.

Matched with a tax equity bridge loan, developers can achieve upwards of 80% of the cost financing during the construction period for 100% merchant assets using Aurelian's capital structure. "With credit enhancements such as that offered through Ascend Analytics' EnSurance platform, Aurelian can be more aggressive. It allows us to invest more into the capital stack and at the same time, is meaningfully accretive to developers," McNeil confirmed. "Our product is akin to super-senior, matched-term financing with no repayment requirement."

It has set itself internal targets of deploying USD 250 million of such financing by the end of the first half of 2025, and USD 500 million by the end of the year.

Asset Ownership

Aurelian will also look to acquire and operate battery storage assets opportunistically. While this activity is unlikely to account for more than 10% of the firm's total investments over the next 12 months, McNeil said it could grow to 25% over time.

For the full article, click here.

About Ascend Analytics

Ascend Analytics is the leading provider of market intelligence and analytics solutions for the energy transition. The company’s offerings enable decision makers in power development and supply procurement to maximize the value of planning, operating, and managing risk for renewable, storage, and other assets. From real-time to 30-year horizons, their forecasts and insights are at the foundation of over $50 billion in project financing assessments. Ascend provides energy market stakeholders with the clarity and confidence to successfully navigate the rapidly shifting energy landscape.

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