Fundraising ratings: what are the criteria?

As part of this selection process, projects are rated based on their risk profile, which depends in particular on two criteria:

• The project's security level
• The sponsor's rating

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Project Security Level

The Issuance Structure

Bond issuances can be carried out at the level of different entities involved in the project:

• The Special Purpose Vehicle (SPV), which directly holds the financed assets. Investors are as close as possible to the financed assets, which can facilitate the establishment of a security interest to protect investors in the event of a default.
• A holding company or intermediate entity does not directly hold the assets, but holds the project company or companies. Its financial strength and repayment capacity depend on the cash flows flowing up from the project companies it owns. This holding company may be the parent company or an intermediate entity. Where the project requires security to protect investors, the shares of the project companies held by the holding company may be pledged.

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Geographic Area

The risk associated with the geographic area is assessed through the country's credit rating and the yield on that country's government bonds.

The Financing Instrument

• Bonds or loans: these are claims against the financed company that are repaid before shareholders. Generally, the expected return on these instruments is lower than that of equity, as their repayment takes priority over shares. Repayment is contractual, at a date set out in the contract.
• Equity: these are traditionally (except where very strong security interests exist, such as buyback commitments) the riskiest and least liquid instruments, but also the ones on which investors seek the highest returns.

Project Stage

The level of risk inherent in a project is closely tied to the phase being financed. Three stages are taken into account when determining the remaining level of risk in a project:

1. The project is in development. Development is the initial phase during which the project's outcome is still uncertain. This phase includes project design, feasibility studies, obtaining the necessary permits, and securing financing. This phase is essential to minimising risks and laying the groundwork for subsequent phases.
2. The project is under construction. This stage involves mobilising resources, building the necessary infrastructure, and installing equipment. It is an intensive period in terms of coordination and project management, as deadlines and budgets must be strictly adhered to in order to avoid overruns. This phase ends when the project is ready to enter into service.
3. The project is in operation. The project becomes fully operational and begins generating energy. This period involves day-to-day management of operations, equipment maintenance, and performance monitoring to ensure continuous and efficient production. This phase can last several decades, depending on the expected lifespan of the facilities and equipment.

Legal and/or Financial Security Interests

Several types of security interests may be put in place to reduce the level of risk borne by bondholders. Indeed, losses in profitability or capital in the event of a default can be minimised by exercising these security interests in order to recover the residual value of the company or the financed assets.

• An autonomous first-demand guarantee, established through a contractual commitment in which the parent company of a project company undertakes to repay the debts of the project company if it is unable to do so.
• Asset pledge (nantissement). If the issuing company fails to make payments at the scheduled maturities, the investor becomes the owner of the assets and the authorisations, rights, and contracts attached to them.
• A non-possessory pledge: the borrower retains possession and use of the pledged assets, but contractually agrees to provide them as collateral in favour of the creditor.

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Bank Financing Status

Whether or not bank financing has been secured prior to a bond issuance is an indicator of the project's robustness. Securing bank debt implies that thorough audits of the project company and the project itself have been carried out, which is reassuring for prospective new investors.

• Bank debt secured: part of the financing required to complete the project has already been secured from a bank.
• Bridge / no bank debt: bank debt is not planned to finance this project, or has not yet been secured.

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Financing Seniority

This refers to the order of priority in which creditors will be repaid in the event of the issuing company's liquidation following a default. A senior ranking implies lower risk and therefore a better project rating.

• A senior creditor will be repaid first.
• A junior creditor will be repaid subsequently.

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Technology

• Mature technologies or activities, such as renewable energy (photovoltaic, wind) or sustainable real estate, and even certain energy efficiency projects, are considered less risky.
• Biogas is a technology considered operationally riskier than other renewable energies.
• Innovative technologies (such as the hydrogen sector or other innovations) are generally classified as higher risk.

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Sponsor Rating

• ‍A+: These sponsors have a parent company with very strong financial resources. In practice, these sponsors are the major national and international utilities.‍
• A: Sponsors in this class have a parent holding company with large financial resources.‍
• B: Sponsors in this class have a parent holding company with average financial resources, but experienced management and a good reputation.‍
• C: Sponsors in this class are early-stage or have limited financial resources. Strong security interests over quality assets will be required for Enerfip to agree to finance their project. Their management has significant experience in the field, and they often have a mid-sized shareholder that allows them to launch their activities.‍
• D: Sponsors in this class are insufficiently mature and lack significant experience in the field, as well as a resilient investor.

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Each of these criteria (and potentially others), combined with the sponsor rating, produces a project rating, enables comparisons between fundraises, and helps verify that the risk/return ratio seems appropriate to you.

To simplify, this corresponds to the following philosophy, even though each project is assessed on a case-by-case basis and dozens of combinations exist that cannot all be summarised below.

Debt Category (or equity with strong guarantees or buyback commitments)

• ‍A+/A/A-: These are the safest projects. For example, mature-technology projects, ready to build, in a stable geographic area, backed by an A or B-rated sponsor.‍
• B+/B/B-: These are advanced-stage projects, using mature technologies, backed by B or C-rated sponsors, but with strong guarantees or security interests.‍
• C+/C/C-: These are development-stage projects backed by B or C-rated sponsors. Projects using more mature technologies will be rated higher than innovative technologies (C+ vs C-), but the selection committee considers the guarantees or security interests to be satisfactory.‍
• D+/D/D-: These are development-stage or innovative projects, backed by C-rated sponsors with weak guarantees or security interests. These projects are not offered on the platform as debt instruments.

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Equity Category

• ‍D+/D/D-: These are development-stage or innovative projects that already have revenue or secured revenue, have begun commercial launch, and are backed by C-rated sponsors.‍
• E+/E/E-: These are projects whose prototype has demonstrated technical feasibility and which have promising commercial development prospects, but which need funding to launch commercial activity, backed by C-rated sponsors.‍
• F+/F/F-: These are first-prototype financing rounds that will not be offered on the platform, even as equity.‍
• G+/G/G-: These are projects with no real start of activity. They will never be offered on the platform, even as equity.

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We reject approximately 80% of the projects submitted to us, which would be rated D or below in our grid (unless offered in equity form, which better corresponds to this risk category). From the moment a fundraise is offered on the platform, it means that the security interests proposed seem to us commensurate with the risk taken. Of course, all investments carry a risk of capital loss. But we do everything in our power to offer you investments that meet your expectations and to provide you with all the information you need to make your own informed decision.