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Securitization of Renewable Energy Projects

BY Madeline Chiampou Tully, Perry Sayles, John T. Lutz
July 02, 2014

Renewable energy developers and other investors in such projects have been seeking, and have recently found, a new way to monetize their investments via securitizations. The first renewable projects to be securitized were portfolios of residential solar assets, and other renewable projects may also lend themselves to securitizations. This article discusses the characteristics of renewable energy projects that are good candidates for securitizations, the structures and considerations involved in the recent solar project securitizations, and the impact of such securitizations on federal income tax incentives.

Basic Considerations for a Securitization

A securitization typically involves the issuance of debt securities backed by a segregated pool of financial assets. These amortize over time and generate cash flows sufficient to repay principal and interest on the debt securities, and generate residual cash flows for the sponsor or other holder of equity interests in the securitization vehicle. The securitization vehicle is usually a special-purpose entity with no other assets or debt that is designed to be bankruptcy-remote. The debt securities may be issued in a publicly registered offering or a private placement (such as a securities issuance pursuant to Rule 144A and Regulation S under the Securities Act), and may or may not be rated by one or more rating agencies.

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