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DOE explains FIPP process, relation to renewable energy solicitation

By Anna Austin
Posted October 26, 2009, at 5:06 p.m. CST

The U.S. DOE held a Webinar Oct. 22 to help explain criteria of the Financial Institution Partnership Program, a program designed to work with leading financial institutions to provide guarantees for loans by those institutions supporting commercial technology renewable energy projects.

During the Webinar, which is the first in a series of FIPP-related Webinars, DOE Program Officer Douglas Shultz explained the process of FIPP and how it works with lead lending institutes and applicants.

Applications for assistance under FIPP will be processed using standards and procedures through qualifying financial institutions designed to assist DOE in implementing the Section 1705 Program as quickly and prudently as possible, consistent with the objectives of the American Recovery and Reinvestment Act.

The "Commercial Technology Renewable Energy Generation Project Solicitation" under FIPP is the eighth solicitation under the Loan Guarantee Program, which derives its authority from Title XVII of the energy policy act of 2005, according to Schultz. "Prior to the Recovery Act, our only authority was to deal with transactions of an innovative nature that would help reduce greenhouse gasses," Schultz said. "Previous solicitations have dealt with everything from fossil energy generation and technologies that might use fossil energies. With FIPP, we are trying to help leverage our ability to be able to support conventional technologies that are dealing with renewable generation and manufacturing. Since the Recovery Act was passed, this has provided us with a tremendous opportunity to be able to work with the private sector of financial institutions, not only through the current solicitation but through a lot of innovative ways-FIPP is an umbrella for being able to do that. The outstanding solicitation is the first step in that process."

The renewable energy project solicitation is based on a syndicated lending structure that most financial institutions are familiar with and use when participating in large transactions, Schultz said. If the transaction is too large for any one lender to be able to hold the full amount, the lead lender, who will originate the transaction, underwrite it and may fund it, will negotiate everything on the transaction upon credit approval and will go to institutions it has worked with in the past to fund and participate in the loan itself so that it will be able to reduce the amount to what it can hold. "It will still hold some of the transaction, but a number of lenders will be a part of that," Schultz said.

The renewable energy project solicitation, and a new one coming out soon related to manufacturing, is based on the idea of a syndicated lending structure where the LGP acts as the syndicate. "Instead of going out to four, five or six lending institutions, a lender can come to the LGP, and go through the same process they would syndicating out to a broader group of lending institutions," Schultz said. "They can come to us instead, one institution will review the transaction, and if we approve it we'll provide up to an 80 percent guarantee."

FIPP, in general, and loan solicitations are not meant to induce private sector financial institutions to take on riskier projects, Schultz pointed out. "We're trying to provide an ability to lending institutions that enables more operational efficiencies, as well as funding efficiencies by using the loan guarantee, but working with them and an existing structure that we and they are familiar with, to be able to do transactions that they would have been dealing with before the financial crisis, and really leverage those capabilities."

Schultz said it's important to note that the DOE will have approval rights over transactions just like any syndicated lender would have. "We expect to have all the materials that we would need from an information memorandum from supporting documents to evaluate," he said. "If the loan is approved, the lead lender is required to hold a significant portion of the loan; lenders in the syndicate can hold the guaranteed loan for a minimum period of construction time plus two years, which is a long risk alignment. After that period, lenders can transfer to other qualified lenders with our reasonable consent."

After closing of the loan, the lead lender will act as the administrative agent during the project construction period, do the dispersements for the loan, and during the repayment phase they will monitor the transaction and provide all of the participants on the lending side of the transaction with reporting. "We've tried to structure the guarantee instrument in such a way that it is straightforward, flexible and as easy to use as possible, making the holder of the guarantee ambivalent as to how the guarantee is actually exercised," Schultz said. "It allows [the DOE] to have more active control just as a normal syndicated lender would do, in terms of various issues that might arise in the transaction, including in the events of default."

Schultz stressed the Sept 30, 2011, project construction commencement deadline. "This needs to be kept in consideration, particularly related to National Environmental Policy Act issues that might arise. "If an environmental assessment is required for a transaction, that would be something to consider when deciding whether it's valuable to move through the program," Schultz said. "In that event, an environmental impact statement can take a considerable amount of time under NEPA, especially a project that has a long lead time in terms of development or acquisition time, or involves other issues that might push to where it will not be able to start construction by Sept. 30, 2011."

Schultz said the DOE is seeking transactions that are transparent, simple and have a high degree of certainty of execution. "This is both because of the fact that we're looking for transactions that are more traditional, and because of the Recovery Act, can get done in a fast and efficient manner. It makes it easier for us to be able to underwrite those from an internal perspective as the transactions are coming in. The more straightforward the transaction, the easier it will be and the more likelihood that we will be able to move forward with any individual transaction in terms of the financial structure."

To learn more about the U.S. DOE Loan Guarantee Program, visit www.lgprogram.energy.gov/.
 

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