Spanish Energy Companies: Selling to Grow

It is no secret that the energy and renewables market in Spain is one of the strongest of its kind in Europe, with wind and photovoltaic (solar) energy developments in particular contributing to the market's growth due to the climate and landscape of the country. Spain's landscape and the appetite of local and foreign investors has allowed the country to set progressive renewables targets, including a target that by 2030, 81% of Spain's electricity shall be generated by renewable energy sources. Some market players have speculated on Spain's ability to meet these bullish energy targets. However, others – particularly foreign energy companies – have viewed the country's renewables market as a prime field into which to expand their clean energy operations.

There is a growing number of examples of how Spanish energy companies are increasingly looking to sell minority stakes to foreign energy companies. Whilst of course this presents clear advantages for Spain's progress towards meeting its environmental targets, and to those investors looking to enter into or expand their involvement in the energy market, it also raises several questions for lenders who may be looking to invest in the space through financing such acquisitions.

In this article, we touch on the impact this emerging trend may have on these lenders, and the considerations lenders should take into account when financing such transactions.

Emerging divestment trends among Spanish energy companies

A prime example of such divestment by Spanish energy companies is one recently forged by Endesa S.A. (a Spanish renewables company which is part of the Enel Group) (Endesa) and Abu Dhabi Future Energy Companies PJSC – Masdar (Masdar). In a transaction that closed in December 2024, Ashurst advised BNP Paribas and a syndicate of five other international banks on a loan facility to Masdar whereby Masdar acquired a 49.99% stake in a subsidiary of Endesa. The transaction is one of the largest renewable energy transactions in Spain in the last 10 years, with the portfolio including 48 solar energy plants with an aggregate capacity of 2GW, in addition to a target of adding 0.5GW of BESS. The intention is for there to be additional add-in acquisitions made after the coming months.

While Masdar already has an existing investment portfolio in Spain (which includes a 1.2GW solar energy project in Castilla-La Mancha), this recent transaction evidences Masdar's growing focus on expanding its presence in the Spanish renewable energy market. Indeed, Masdar also recently acquired Saeta Yield, which holds a portfolio of 745MW of energy assets (mostly wind projects, 538MW of which are in Spain). Masdar has set a target of having a global capacity of 100GW by 2030, and it looks as though Masdar's investments in the Spanish renewables market are likely to play an important role in reaching this target going forward.

The key driver for energy companies wanting to divest minority stakes is often their desire to free up capital for reinvestment. This is particularly attractive in a capital-intensive industry such as the Spanish renewables market given that, as mentioned, Spain has set ambitious environmental targets which are likely to require both Spanish and foreign investment in order to be achieved.

However, a key concern when considering such divestment is how to balance the interests and objectives of the Spanish energy companies (e.g. to maintain operating control) and the minority investors and their financiers. Given that the structure of such transactions usually involves the purchase of shares in Spanish energy companies, it is often akin to an acquisition financing rather than a pure project finance or asset finance deal. This distinction is especially significant for lenders, as it directly influences the level of security and control financiers have over their investments and, consequently, the nature of the acquisition and facility documentation.

Financing the acquisition of minority stakes – considerations for lenders

Understanding limited security packages

In a project financing, the security package would typically comprise of 'all-asset' security at the Project-Co level, with share security at the Hold-Co level to give lenders comfort that they may sell off the entire project in an enforcement scenario. This level of security is particularly appealing to financiers as it adds an additional layer of control and recourse.

In contrast, the security package available to lenders in an acquisition financing of this nature is typically limited to share, receivables and account security over the borrower and the target company. Unlike a project finance transaction, the security on offer does not extend to cover assets at Project-Co level. This leaves lenders to rely on having to sell the Borrower or Target shares in an enforcement scenario. In addition, without direct security over project assets, lenders have less control over the operational aspects of their underlying investment, which can be particularly concerning where there are fluctuations in a project's performance and market conditions. This increased risk necessitates a more thorough assessment by lenders of the relevant Spanish target company's financial health and operational capabilities, which can be achieved by ensuring that key decisions require lender consent.

Mitigating lender risk through facility documentation

The limited security packages on offer in transactions of this nature can be complimented by incorporating certain control mechanisms in the facility and acquisition documentation.

The shareholders' agreement typically grants certain rights and controls to the minority investor (in this case, the Borrower under the financing), despite their minority stake. These rights often include the requirement for the minority stakeholder's consent on key decisions to be made by the Target Group. To protect the interests of the lenders, the terms of the facilities agreement should stipulate that when the minority stakeholder's consent is required in accordance with the terms of the shareholders' agreement, the consent of the lenders is also required. This arrangement ensures that the lenders maintain a level of control over critical decisions relating to the Target Group.

In addition, although less common when dealing with the acquisition of a minority stake compared to project finance (where there is a higher degree of control afforded to lenders in the facility documentation over the operational performance of the project), lenders may seek to insist that certain financial covenants be included in the facilities agreement to provide them with oversight of the financial health of the target company. These covenants can act as early warning signals, allowing lenders to take pre-emptive actions to safeguard their investments.

The future

The trend of minority stake divestment in the Spanish renewables market presents both opportunities and challenges for lenders. Understanding the nuances of security packages and the controls available to lenders in the facility documentation is essential for lenders looking to finance these transactions. Ashurst, with its expertise in both the Spanish and international financial markets, is well-positioned to advise lenders on navigating these complex transactions.

Learn more about the recent financing of a Spanish-Middle Eastern acquisition deal Ashurst advised on here: Ashurst has advised BNP Paribas and a syndicate of five other international banks on one of the biggest renewable energy transactions in recent years.