The successful execution of the €220 million financial package for Igneo Infrastructure Partners' DAH Gruppe marks our first bioenergy deal within the biogas and biomethane space. Following this transaction, the German biogas platform, DAH Gruppe, is now enabled to expand its asset base and develop its portfolio of plants with a focus on Eastern Germany. This deal is key to DAH Gruppe's growth strategy which includes taking a lead role in biomethane production to drive Germany's contribution towards RePowerEU's 2030 biomethane target.
The Challenge
At closing, DAH Gruppe owned and operated a portfolio of twenty-one biogas plants in Eastern Germany – eight of which produce biomethane, with three existing plants being upgraded. Since then, six further facilities have been acquired. Market profitability, along with strong regulatory tailwinds towards biomethane production in Europe, has opened up fresh growth opportunities in the sector.
However, the bankability of biomethane projects depends on two key challenges: first, the reliable and cost-effective sourcing of feedstock; and second, flexible long-term offtake arrangements.
The demand for biomethane produced with animal manure as a feedstock - which has the advantage of net-negative CO2 intensity and eligibility for double-counting of emission reductions - has increased since the CO2 certificate scheme was enforced in the German transport sector. Establishing long-term arrangements with farmers for manure, though, is difficult with sellers preferring to operate on short-term bases.
As reported in Reuters in 2023, a number of biofuels on the German market were found to be falsely certified as 'advanced'. These illegible products were initially competing with biomethane produced specifically for CO2 certificates and set unsustainable prices, created offtake uncertainty, and made it difficult for many industry players to create a credible business case. Increased scrutiny over product legibility has improved offtake confidence levels, but at the cost of production flexibility for developers, putting more pressure on feedstock supply.
In the case of DAH Gruppe, its unique setup has feedstock and offtake solutions built in to navigate the key challenges that are barriers to growth for other producers.
Execution
Upon completion in October 2024, this project became the first bioenergy deal successfully executed by MUFG's Structured Finance team in EMEA.
Prior to this deal, MUFG monitored the German biomethane market for multiple years, familiarising itself with the sector and establishing the risk profiles that it was best placed to support.
Having been in close contact with various players about biomethane projects in Germany before, MUFG was ready to move ahead with the transaction for DAH Gruppe when the opportunity emerged and devised a timeline for obtaining credit approval. This timeline factored in the MUFG team's educational process with internal stakeholders to consolidate their comfort with the project's setup and its mitigation of industry risks.
DAH Gruppe's structure was decisive in making this a bankable financing project for MUFG to execute. Being vertically integrated, it produces its own crop feedstock to manage import risk and supplements this with strong, long-term manure sourcing agreements.
On the other end of the business, DAH Gruppe's offtake contract with an investment grade-rated energy company, provides a high degree of price certainty and allows them flexibility to sell two different types of biomethane according to feedstock availability. The offtake agreement runs into 2030 which allows time for contingency planning.
The debt package had to be structured in a way that combined the sponsor's interest in creating a platform financed on a going concern basis and the funder's need to manage the risk of the existing offtake agreement expiring before the final maturity of the debt.
To reduce financial risk for lenders, MUFG structured the deal with incentives to refinance the debt post-maturity and included the built-in protection of early cash sweeps triggered by revenue testing.
Acting as mandated lead arranger, MUFG supported the refinancing of DAH Gruppe by structuring a 7-year senior debt package to back the group's future growth. The total package comprised of a €100m term loan, €100m Capex, and €20m Revolving Credit Facility. The MUFG team also served as hedge providers and lenders to support this deal.
Results
Biomethane contributes considerably to the energy transition in Europe. As an alternative fuel, biomethane is not only low in CO2, but is also produced from local resources and is compatible with the existing natural gas infrastructure.
The European Commission regards biomethane production as a crucial means of cutting natural gas imports and improving energy security. As a result, there are plenty of opportunities for development in this sector with increased appetite among financial sponsors.
As part of its long-term strategy to scale up biomethane production in Europe, Igneo took ownership of DAH in 2023. DAH's goal is to further grow the production capacity of biogas and biomethane in Germany and ramp up its contributions towards the European Commission's target of 35 billion cubic metres of biomethane production per year. MUFG is supporting DAH in its efforts by providing the necessary financial means.
By arranging the €220m financial package, MUFG is helping DAH to cement its place at the forefront of biomethane production in Germany. Now, the company has greater capacity to build its portfolio both through development and acquisition as the industry scales up its productivity.
Stefan Jost, Managing Director of DAH Gruppe says:
"The long-term financing package provided by MUFG and various other lenders serves as evidence of the trust in the biomethane market as a whole and equally in the capabilities of our company in particular. This financing enables us, to further expand our role as one of the leading biomethane platforms in Germany".
