Below are soundbites from speakers and panelists who spoke at Infocast’s Solar Power Finance & Investment Summit on March 22 and 23 in San Diego. It was Infocast’s best attended event ever, and the mood was relatively upbeat.
The soundbites are edited for clarity and are organized by topic, rather than in chronological order. They were prepared without the benefit of a transcript or recording.
Tax Equity Structures
“The tax equity flip [partnership structure] is more complicated, [than a sale-leaseback], in particularly if there is back leverage.” Director of Investing, Solar Company
“The optimal structure for C&I [for a partnership flip with back leverage] is 40 percent tax equity, 45 percent back leverage debt” and 15 percent sponsor equity. Director of Investing, Solar Company
“Last year it was almost universally inverted leases; this year mostly partnership flips.” Banker, Specialty Bank
“There is a more pronounced tension between back leverage and tax equity in an investment tax credit transaction, [than a production tax credit transaction,] because of the risk of recapture of the investment tax credit.” Managing Director, Tax Equity Investor
“There is increased tension between back leverage and tax equity, whether the stress is cash step ups for under performance or other matters. What we thought were normal structuring techniques the back leverage lenders take exception to.” Managing Director, Money Center Bank
Selecting a tax equity structure should be “all about velocity. Really, [the sale-leaseback] is what is easiest to do.” Managing Director, Regional Bank
“A cash strapped sponsor is not the best candidate for a partnership flip; they are better off with a sale-leaseback.” Executive Director, Non-Traditional Tax Equity Investor
“Some tax equity ask us to lend at the project level – senior secured – for capital account reasons. But by the time you negotiate the forbearance and related debt/equity terms, you might as well be back leverage.” Group Head, Regional Bank’s Capital Markets
“We only consider project level debt as a lender. We have negotiated dozens of forbearance agreements with tax equity.” Banker, Specialty Bank
State of the Tax Equity Market
“There is enough [supply of] tax equity for 2017 [projects]. We are seeing some 2018 transactions being pushed by developers into 2017.” Advisor, Boutique Accounting Firm
“We like to take our limited [annual] tax capacity and spread it over a greater volume of deals, so we prefer wind” which has a ten year production tax credit, rather than a 30 percent investment tax credit in the first year. Managing Director, Consumer Finance Bank
“In wind, you [(i.e., the tax equity investor)] are a bigger piece of the capital stack. In solar, it is smaller piece because the investment tax credit is all up front. [The sponsor] wants to minimize the tax equity to maximize the back leverage, which is cheaper capital.” Advisor, Boutique Accounting Firm