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Transaction Negotiations and Commercial Advisory

Orchid Group has a long history of helping clients perform due diligence on investment opportunities, valuing those opportunities and working through the transaction negotiations and structuring process.

Clients often hire us at the early stages of considering investments to run an initial “fatal flaw” analysis. In such cases, we deploy a cross-functional team to review permits, licenses, key project agreements, site control, project economics and market related issues to assess whether there are any significant and potentially uncurable project flaws before our client makes the decision to move forward with a more in-depth and expensive due diligence process. We also encourage clients to investigate the foreign business partner and people involved directly or indirectly in the deal as these factors can and do impact the final outcome.

In a more robust due diligence, we are able to advise on market related aspects of the project through our market research arm, advise on broader commercial issues like identifying suppliers, partners and structuring agreements; identifying product off-takers and structuring off-take agreements; assessing options for revenue hedging and facilitating the process of implementing hedging devices. Through Orchid Law, we can provide full legal and regulatory support or we can manage a third party legal advisor on behalf of our client. We also are able to manage the technical advisor to ensure our client gets the maximum out of technical support. Lastly, we can pull all the various pieces together to provide a valuation for the investment opportunity.

Stemming from a successful track record of leading projects on the corporate side, our team is able to offer clients top notch negotiations and structuring support. We are deliberate in our approach, using a variety of tools to thoroughly assess the counter-party’s key needs, wants and breaking points in order to craft negotiating strategy that generates maximum value to our client while protecting against potential liabilities and exposures.

Case Study: #1 Commercial Advisory
Case Study: #2 Commercial Advisory
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Case Study: #1 Commercial Advisory

kosep

Background: Korea South-East Power Co. (“KOSEP”) was considering the acquisition of a greenfield CCGT project in Pennsylvania within the PJM market and hired Korea Ratings (“KR”) to assess the feasibility of the project. On behalf of KOSEP, KR hired Orchid to lead due diligence from on the ground.

Orchid's Role:

  • Orchid oversaw the development of a power market simulation of the PJM market.
  • Engaged a third party legal adviser and managed the legal review.
  • Provided an overview of the US power sector and the PJM market.
  • Provided an overview of the US natural gas market with emphasis on the Marcellus Shale.
  • Reviewed the project gas sourcing plan and provided feedback on options to procure gas.
  • Reviewed the power marketing plan and provided input on hedging and power sales options.
  • Orchid reviewed all contracts, permits and licenses for potential issues.
  • Critical problems were identified by Orchid. Project never constructed due to these issues. Developer eventually went bankrupt.

Orchid's Deliverables:

  • A report on the project covering power sales, gas procurement, regulatory and permitting issues, identifying risks and proposing mitigation
  • The power market simulation output and scenarios
  • Identification of any fatal flaws

Case Study: #2 Commercial Advisory

xemc

Background: Chinese wind turbine manufacturer, XEMC, approached Orchid to advise it on a brownfield wind power project in California that the firm was considering purchasing and re-powering with its own turbines.

Orchid's Role:

  • Orchid essentially acted as “financial advisor plus” for XEMC, filling some of the traditional roles of a financial advisor but leveraging our extensive industry experience to go beyond that role.
  • Orchid developed and maintained the financial model for valuing the acquisition.
  • Orchid led due diligence on the project with a particular emphasis on regulatory issues.
  • Orchid directed the third party legal adviser on the project.
  • Orchid supported XEMC in developing the documentation necessary for securing financing from Chinese lenders.
  • Orchid advised on and led negotiations with the seller.
  • Orchid also advised on other matters pertinent to the transaction as XEMC required.

Orchid's Deliverables:

  • Financial model and analysis
  • Overall pricing and negotiating strategy development
  • Development and maintenance of project plan & work schedule
  • Preparation of materials for approvals and financing

Case Study: #2 Market Research

Background: The Electricity Generating Public Company Limited wished to bid on the sale of a 49% stake in an 1800 MW CCGT in South Korea and needed an adviser to forecast power market prices and advise on issues related to LNG supply agreements and a terminal use agreement.

Orchid's Role:

  • A report on the project covering power sales, gas procurement, regulatory and permitting issues, identifying risks and proposing mitigation
  • The first step was providing client with an overview market report explaining in detail how the Korean power and gas markets operate, identifying risks and looking at evolution in market regulation and policies.
  • The second step was due diligence on all commercial agreements related to the project and production of a red flag report.
  • The third step was running a market simulation and developing the analysis in report form. We ran ten cases in total.
  • Finally, we advised client on issues related to LNG market risk, and provided input on mitigating risk in the transaction documents.

Orchid's Deliverables:

  • Price forecasts for LNG and power in South Korea through 2046
  • Base case plus nine sensitivities
  • Full reporting on the market as well as analysis of simulation result
  • Risk analysis and mitigation strategies

Case Study: #1 Market Research

Background: A confidential client was required by the lenders to two of its gas-fired power projects to demonstrate the competitiveness of its LNG supply agreements. Orchid Group was engaged to conduct the study.

Orchid's Role:

  • Orchid was engaged in 2018 to develop an outlook for new LNG contract prices over the next ten years.
  • The purpose of the work was to demonstrate to the lenders to client’s power projects that their LNG supply agreements would be competitive over the life of the loan.
  • We began by looking at historical supply/demand in LNG markets against evolving long-term contract price trends.
  • From there, we developed an outlook for global LNG supply and demand over the next 10 years.
  • Against the outlook, we assessed the trend for new project financial investment decisions and challenges facing the development of new projects.
  • Finally, we developed an expected price formula outlook for years 1-5 and years 6-10.

Orchid's Deliverables:

  • Powerpoint report incorporating historical analysis, the outlook and pricing expectations
  • Report was delivered to client’s lenders to satisfy obligations under the term loan agreements

Case Study: Deal Origination

Background: Energy Initiative Japan (EIJ), a Japanese developer of solar projects hired Orchid to lead the sale of a portfolio of greenfield solar projects developed under the Feed-in-Tariff (FIT) established under the “Act on Special Measures Concerning the Procurement of Renewable Electrical Energy by Operators of Electric Utilities” in Japan.

Orchid's Role:

  • Orchid was engaged by EIJ to assist them in preparing the materials required to attract long-term investors in their portfolio of solar projects, approach investors and support concluding a transaction.
  • We worked with EIJ to understand the details behind the projects and to prepare the necessary materials for a data room including the financial model.
  • We identified high potential investor groups, prepared a teaser document and engaged the targeted buyers.
  • Throughout the investor review process, we managed relationships and facilitated the timely completion of due diligence.
  • We worked with EIJ and the preferred bidder to move towards the close of an SPA.
  • As a result of the process, Sonnedix of France acquired the projects.

Orchid's Deliverables:

  • Origination of potential investors
  • Preparation of teaser materials
  • Coordination of data room preparation
  • Management of the transaction process

Case Study: Strategy Consulting

doosan

Background: Doosan Heavy Industries (DHI) was eyeing the United States as their key market for selling wind turbines, but wanted to understand whether they could compete there, what models were most competitive the logistical network required for them to compete in the USA. They hired Orchid to help them work through developing market entry strategy.

Orchid's Role:

Orchid provided DHI with a comprehensive package complete with strategic options for entering the USA.

  • Detailed overview of the US market and outlook for wind growth
  • Trends in wind turbines in the USA including guarantees, O&M and other issues
  • Outlook for incentive programs
  • Issues related to financing wind projects
  • Regulatory overview
  • Competitor analysis
  • Strategic considerations
  • Customer willingness to embrace new wind turbines
  • Desired product offering
  • Marketing presence & organization
  • Manufacturing
  • Transport logistics

Orchid's Deliverables:

  • Detailed slide deck covering all issues in scope
  • Interim presentations and final executive committee presentation
  • Generic financial model for USA wind project
  • Financial projections “potential size of the prize”