- ESCO portfolio guarantee – to attract more ESCO companies into this business and to make ESCOs more comfortable by guaranteeing the risk of their counterparties – the project beneficiaries.
- Residential portfolio guarantee – to kick-start the market of EE investments in the residential sector, by providing market products that overcome the lack of legislation in the country.
ESCO Portfolio Guarantees
Normally ESCOs would bid for a project and then go to a bank to secure finance for it, or have a line of financing ready and fill it in with projects. The shortcoming of this approach is that typical ESCOs rely heavily on raising debt to fund their performance contracts. This requires that the cash flow of their business is very accurately timed and budgeted. Delayed payments from clients, or defaulting clients may severely disrupt the servicing of the debts of the ESCO itself. With our ESCO portfolio guarantee, we undertake some of the risk of the ESCO and guarantee that we will cover such disruptions in the flow of receivables of the ESCO.
Statistically, the default rate of clients of ESCOs is negligible so that 5% cover of the guarantee is more than sufficient. Delays in payments are more probable and in such cases EERSF will act as a financial buffer to take the shocks.
On the other hand, such product provides an excellent leverage of EERSF’s own funds. For example a BGN 500 000 guarantee will facilitate a portfolio of investments in the amount of BGN 10 million.
Residential Portfolio Guarantees
The guarantee works in the following way: EERSF helps the households in a building to develop a good project. Then a first class company is selected to implement the investment. The bank gives the funds to the project developer, but the repayments afterwards come from the individual households. Each household pays proportionately to their built-up area. EERSF guarantees that it will cover the first 5% of defaults within this block (or portfolio of blocks). Statistically the default rates in customers’ loans are from less than 1% in some banks, to about 2.5-3%, so a guarantee of 5% will cover fully the risk of the commercial bank.
This product is being developed as a partnership with commercial banks. As mentioned before, the main reason why the EE investments in the residential sector have not materialized yet is because of the lack of adequate legislation. Moreover, in Bulgaria there is no tradition of condominiums or household associations and there is a lack of trust between the families in one building. We found a way to overcome all this by acting as a gluing component between the commercial banks and EE projects in the residential sector.
Partial Credit Guarantees
|Type of Guarantee
|Partial – 80% on a “pari passu” basis
|0.5 – 2 %
|up to 10 years
|Partial – 50% on a first-loss basis after the bank-creditor
|0.5 – 2 %
|up to 10 years
Individual (per project) guarantee commitments shall not exceed BGN 800 000.