Using US Investment Tax Credits to fund qualifying projects through CAP

US Investment Tax Credits (ITCs) have helped stimulate the US economy with incentives for growing and emerging sectors such as renewable energy, qualified waste conversion and others, also known as Section 48 ITCs (extended for projects that begin construction by 2033; more).

There is a direct path for using these Investment Tax Credits, either for the related project(s), or unrelated projects, by pre-selling them into the marketplace of buyers, with rates purportedly $0.92-.95 on the dollar (monetized value).

For $80M in ITC value, for example, that’s minimum $73.6M, which can be leveraged 2.5x – 3.5x for CAP funding via Solution 2, a cash surety deposit (CSD). Several other pathways exist with ITC value, but CSD is the most leveraged.

We can ask Nick for feedback on that simplistic scenario to see if there’s a chance that a series of these might enable faster than customary draws if each one stands by itself.

Yesterday’s scenario is probably the better approach, however, bundling say 4 or 5 of these together at $1B-$1.25B over 24 – 30 months, which if such a deposit were available “in aggregate” via a structured finance commitment to total of $300M (for 4) to ~$375M (for 5) cash surety deposits, would indeed deliver $250M in even amounts every 6 months. I’ll ask Nick if that works in 2-3 tranches of cash infusions to their BofA Custodial Account. Yes?

Then what happens to the cash upon completions? To be clear, the full CSD would need to remain in the Custodial account until the full funding had been disbursed. We don’t use Commercial Operation Date (COD) as the milestone with CSDs. It gets returned in lump sum on the last drawdown of funds, so you can plan to do whatever makes sense at that point. Major shopping spree?!?

Going one plant at a time, each under separate or single Contribution Agreements (the contract type SGGI uses for their equity investments these days, … effectively a JV) returns the CSDs per each completed draw schedule. In aggregate does accelerate the effective timing of each plant’s available funding (6 mo, as you mentioned), with the funds being held until all the funding has been disbursed — the only apparent downside.

This is a Custodial account where the client would have access to the funds sitting there. It does not bear interest (we’ve had discussions about using a client’s CD, but Nick hasn’t been asked to give a definite yes/no answer so far), though this structure would allow a bridge lender’s interest payments (out of invested proceeds) out of each draw, if/when the CSD was borrowed. Monetized ITCs would presumably avoid that expense entirely by taking a “haircut” when they’re sold to raise the CSD(s). Am I making sense?

Technically, the client could draw back the deposited funds ahead of schedule, though that would stop SGGI’s subsequent disbursements, causing a breach-of-contract notice with a cure period to get back on track. I’m just illustrating one of the safety features. For more on that, see attached, in case anyone has one or more of these questions.