CMS’s Kostadin Sirleshtov and Atanas Bangachev Talk About The Deal of the Year in Bulgaria.
CEELM: First, congratulations on winning the Deal of the Year Award in Bulgaria!
Bangachev: Thank you, we are most excited!
Sirleshtov: We feel great, mainly because we won every deal of the year since it all started for Bulgaria. This was very well deserved, led amazingly by Atanas. Unfortunately, we didn’t have too many deals on the market last year, so it was most positive that this one came to be.
CEELM: Can you describe the deal for us, and the firm’s role in making it happen?
Bangachev: Well, the deal started, and was organized, as a standard exit process. There were a lot of interested parties, a lot of buzz was generated. We acted for the three major selling shareholders – ACWA Power, Blackrock, and Crescent Capital. I have to say that ACWA Power, the Saudi energy and water company, was very professional and their M&A team was very, very well organized, even with this being their first-ever exit! They had very high standards and, from that perspective, were very well organized which, I believe, only helped the deal run smoothly until signing.
Then, the first wave of COVID-19 hit and both the existing financiers and the new one became more conservative, so we were forced to restructure the deal significantly. Before, it would have just been a 100% share sale, with the buyer dealing with post-completion refinancing of the existing facility. However, refinancing of existing debts ended up taking place as part of the completion, which only made the deal more complex. Not to mention that any refinancing and new financing had to be approved by the Bulgarian energy regulator.
On top of that, the existing financiers – public international financing institutions – had a burdensome refinancing process on their hands and we too had to deal with the refinancing – something which was primarily the buyer’s task. Coordinating and aligning the interests of this number of stakeholders was a huge challenge for us, to have it all run smoothly.
But, in the end, it all turned out alright, with us supporting the seller throughout the entire process, both the pure M&A sell-part of the deal, as well as the refinancing and coordination with existing financiers, and the ultimate refinancing.
CEELM: How did you land the mandate and what do you believe it was about your team that got it for you?
Sirleshtov: It was a very natural move for us, simply because we advised the client for nearly ten years, ever since they came to Bulgaria in the first place and acquired this asset. This was, I’d say, a natural move for the client, we did all the legal work for them since early 2012, starting with the acquisition of the asset.
We assisted the client through all difficulties, like feed-in-tariff cuts, and we continue representing the client in the first ICSID Energy Charter Treaty investment arbitration against the Bulgarian state. ACF maintained the claim, and we just had the final hearing on this case and are expecting an award in early 2022. I’d love to be able to tell you a story of us pitching and winning the mandate, but the thing is that we’ve been holding hands with the client for almost ten years now. Our first mandate for them was due to our excellent personal relationship with one of the minority shareholders, Crescent Capital, who were former representatives of the EBRD for Central and Eastern Europe. They were always active in testing the ground for Bulgaria and they introduced us to ACWA Power and First Reserve, who later-on sold the fund to Blackrock.
CEELM: What specific aspects of the refinancing that made the matter more difficult can you share with us?
Bangachev: Well, we covered most of this already, but, speaking of the specifics, the existing financing was a project development financing, and it had a very complex security package. Additionally, all kinds of restrictions were applied – what the target could and could not do. Moreover, the project development financing was resold to different participants by the international financing institutions.
So, the situation was such that, once a repayment notice was filed, a point of no return was reached. The refinancing could only happen 45 days after the filing and there were various aspects and uncertainties that precluded us from knowing for sure what other steps and conditions might apply. This added some fog to the deal and some degree of unpredictability as to its smooth progress and completion.
Also, we could not ask the new refinancer for any additional leeway. Thus, the real difficulty was setting up a procedure where all this debt periods result in a success and all conditions are satisfied so that when closing comes, we have all the necessary funds from the refinancing parties, and all can run smoothly.
CEELM: In contrast, what, from your perspective, went particularly smoothly and what do you believe contributed to it?
Bangachev: It was a difficult situation for both the seller and the buyer. At times very much so. But both sides really wanted the deal to close and worked hard to find an answer to every question. As did the existing and new financier parties too.
Consequently, all these stakeholders and the six law firms involved – all parties worked for a solution and cooperated smoothly. Although difficult, it was an amicable process, which made the entire ordeal that much easier.
Sirleshtov: At the time of this deal closing, it was considered that the buyer overpaid for the asset. Basically, it was a very stringent bidding process and once Enery came in and committed to such a high price – everybody walked out of the room. However, the reality is that this asset contributed substantially to Enery receiving funds under the Three Seas Fund initiative.
Sofia has been the headquarters of the Three Seas Fund initiative for a year now, and a few days before a large summit it was announced that Enery would be the first recipient of the funds, which would allow them to expand substantially. I think this deal was a cornerstone for the next step in Enery’s development and growth.
CEELM: Why do you believe the judges voted for this deal over the others?
Bangachev: Based on the complexity of the deal, I believe. Also, it was the largest and one of the first renewable energy deals in Bulgaria. Before it, there was a period of a slowdown in this sector, so this deal was a landmark one.
Sirleshtov: I believe it was the largest renewable energy deal on the market as well. It was not just M&A, but M&A plus financing, in the middle of the COVID-19 pandemic. It was not easy, but looking at the rest of the market, I believe this was the most challenging project.
CEELM: Can we expect more similar renewable deals in Bulgaria in the near future? Why/why not?
Sirleshtov: I’d say there is a pipeline of deals now, which are happening. Some of them are not yet announced, but there was a deal with ENEL exiting, which we did, following this one, and there is another one in the pipeline for wind.
Still, the reality on the market is that the buyers are much more committed than the sellers, so if there are no more deals following this – this won’t be caused by the fact that there were no buyers, but by the return on this investment being so good that the businesses are very reluctant to sell.
This Article was originally published in Issue 8.7 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.