Show Me the Money: Loan Guarantee Solicitation for Commercial Technology Applications

Oct 7, 2009 - Stoel Rives, LLP

In a much-awaited move, the Department of Energy ("DOE") has issued another solicitation under its Section 1705 Loan Guarantee Program (the "Section 1705 Program"). Unlike other solicitations under the American Recovery and Reinvestment Act ("ARRA"), this solicitation is not aimed at the borrowers or the developers — it is open to lenders only and invites them to apply for a partial, risk-sharing loan guarantee under the Department of Energy's ("DOE") Section 1705 Loan Guarantee Program for Commercial Technology Renewable Energy Generation Projects. This solicitation provides up to $750,000,000 of the $3.95 billion made available to support debt financing of U.S. renewable projects. The solicitation appears to be DOE's answer to the inability of eligible borrowers to meet the cost-share requirement.

This particular solicitation will be implemented through the use of a Financial Institution Partnership Program ("FIPP" for short), a streamlined set of standards that is layered on top of (not instead of) the existing Section 1705 Program. DOE's goal is to accelerate the loan guarantee underwriting process through FIPP and encourage the provision of private lender expertise and capital for eligible projects.

The requirements for the eligibility under this solicitation include the following:

1. The guarantee percentage will not exceed 80% of the maximum aggregate principal and interest during the loan term.
2. The lead applicant is a financial institution or group of institutions that will make all or part of the loan for the project and will act as the administrative and servicing agent for the loan.
3. The lead applicant must also act as a guarantor of the loan on a pari passu basis with the DOE (a change from DOE's previous position that all other lenders were subordinate to it).
4. The financial institution must itself meet certain requirements which include such no-brainers as not being delinquent on any Federal obligation, and having experience with loans of this scope and size.
5. The borrower and other project principals must have contributed equity (by which the DOE means cash; "equity" does not include the remaining non-guaranteed portion of the loan or other governmental loan programs or assistance).
6. The project must be a wind, solar, geothermal, landfill gas, trash-to-energy, hydro or biomass (open- and closed-loop) project. Transmission, manufacturing and leading edge biofuels projects are not eligible.
7. The project debt must also obtain a credit rating of at least �BB' from Standard & Poor's or an equivalent with a nationally recognized credit rating agency.
8. The project must commence construction by September 30, 2011—the sell-by date for the DOE's authority to enter into loan guarantees.

"Commencing construction" includes the following:

• The project must have all its permits, hired its contractors and ordered essential equipment and supplies so that the project can be constructed.
• Construction must commence by September 30, 2011.
• Some construction activity must take place.

The borrower must deliver written assurance that construction has started to the lender and DOE.

As always, there are significant reporting requirements and the project must comply with Davis-Bacon and Buy American provisions (the latter are an issue only for public buildings or public projects.)

The application process is in two parts: Part I submissions will be accepted on a continuing basis and applicants must submit a Part I application to be eligible to make a Part II application. DOE will let the applicant know whether it should submit a Part II application within two months of receiving the Part I application. The Part I submission should give DOE a good overview of the project, the financing strategy and list the licenses and permits that it has received by the date of submission. The Part II submission must provide much more detail, including anticipated milestones, engineering reports and an estimate of project costs. There are ten Part II submission deadlines between November 23, 2009 and January 6, 2011, occurring almost as frequently as once per month.

The DOE anticipates issuing another FIPP solicitation that will provide loan guarantees for commercial renewable manufacturing projects — no indication as to when that solicitation will be issued.

If you have any questions about the content of this alert, please contact:

Seattle, Washington
David Benson at (206) 386-7584 or dlbenson@stoel.com
Janet F. Jacobs at (206) 386-7582 or jfjacobs@stoel.com
J. Graham Noyes at (206) 386-7615 or jgnoyes@stoel.com
John Laney at (206) 386-7559 or jslaney@stoel.com

Portland, Oregon
Marcus Wood at (503) 294-9434 or mwood@stoel.com
Bill Holmes at (503) 294-9207 or whholmes@stoel.com
Dina Dubson at (503) 294-9675 or dmdubson@stoel.com

Minneapolis, Minnesota
Greg Jenner at (612) 373-8857 or gfjenner@stoel.com
Debra Frimerman at (612) 373-8819 or dhfrimerman@stoel.com

Sacramento, California
John McKinsey at (916) 319-4746 or jamckinsey@stoel.com
Seth Hilton at (916) 319-4749 or sdhilton@stoel.com

Boise, Idaho
John Eustermann at (208) 387-4218 or jmeustermann@stoel.com