Securitization of Renewable Energy Projects

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.

To successfully structure a securitization, the following elements usually are necessary:

• A predictable cash flow: The underlying assets should have a well-established payment history.
• Overcollateralization: The face value of the underlying assets should exceed the principal amount of the debt issued, with reserves established for particular risks.

Servicing capability: An entity with the appropriate experience and resources should be appointed to collect payments on the underlying assets (and if such entity is the sponsor of the securitization, it may also be necessary to have a third-party servicer available to step in to perform such functions if the sponsor defaults).

The ability to enforce over the underlying security: The security agent acting for the investors should be able to trap cash flows, and take control of the assets that generate such cash flows.

Consistent credit underwriting standards: The parties obligated to pay on the underlying assets should be subject to credit underwriting standards satisfactory to the investors.

Diversification: The pool of parties obligated to make payments on the underlying assets should be as diversified as possible.

Standardized underlying agreements: In situations where there is large pool of underlying assets, the terms of such underlying assets should generally be consistent, so that investors and rating agencies (if applicable) can more easily assess and compare risks and monitor the performance of the transaction.

Payments due under leases or power purchase agreements with residential or commercial customers are financial assets that are easily capable of securitization, and companies that distribute residential solar systems have begun to take advantage of securitization as a means of financing their operations.

Key Elements of the Recent SolarCity Securitization

In November 2013, SolarCity closed what has been identified as the first widely issued residential solar securitization. The securitization involved the private placement of approximately $54 million of secured notes that were rated “BBB+” by Standard & Poor's. The underlying assets consisted of payments under power purchase agreements (“PPAs”) and leases with approximately 5,000 customers, primarily residential but also commercial (“Host Customers”).

The transaction did not have all of the features typically sought in a securitization, but the structure was deemed sufficiently robust to receive a “BBB+” rating. For example, although geographic diversification is often considered important for consumer receivable securitizations, the customers for the SolarCity transaction were located primarily in California, Colorado and Arizona, all states with reliable sunshine. In addition, although the secured notes matured after 13 years, the power purchase agreements and leases had terms of 20 years. Based on rating scenarios run by Standard & Poor's, however, cash flows generated in the first 13 years were deemed sufficient to pay all interest and principal on the secured notes on a timely basis.

In its published ratings report, Standard & Poor's listed as strengths of the transaction, among others, the facts that: 1) the initial note principal amount was only 62% of the aggregate discounted value of all payments under the power purchase agreements and leases; 2) there was an interest reserve covering six months of interest payments, as well as a specific reserve to cover anticipated inverter replacement costs; 3) the solar assets had an average age of only two years; 4) the notes had an early amortization feature that was triggered if a debt service coverage ratio was not satisfied; and 5) an experienced trustee was appointed to step-in as servicer if required.

Weaknesses identified by Standard & Poor's included: 1) a limited performance history for the asset class and the customer pool; 2) legislative uncertainty as to the benefits provided for using solar energy; 3) the inherent unpredictability and variability of cash flows based on solar energy production; 4) differences in solar panel quality across manufacturers; 5) the availability of other sources of energy, including other renewable technologies; 6) the risk of customers seeking to renegotiate the terms of their power purchase agreements and leases; and 7) the risk of solar system failures hampering cash collections. However, such weaknesses were mitigated by having a customer pool with high FICO scores or (in the case of commercial customers) investment grade ratings, low levels of default on existing SolarCity systems, the likelihood that customers would continue to make payments as long as there was a meaningful value proposition, the use of an independent engineer to assess solar production estimates and panel quality and the fact that most systems had been installed for two years and most failures occur in the first two years.

Securitization Considerations

Introduction to Renewable Tax Equity Investments

Investors (“Tax Equity Investors”) and renewable energy developers (“Sponsors”) have entered into a variety of tax equity structures intended to enable the Tax Equity Investor to share in the cash flow, tax credits and/or depreciation deductions associated with a renewable energy project. In the discussion below, we use a portfolio of residential solar projects as the representative renewable energy tax equity project.

Background on Renewable Energy Federal Tax Credits

The investment tax credit (“ITC”) under section 48 of the Internal Revenue Code (“IRC”) is a one-time federal tax credit based upon the amount of capital investment as of the placed in service date for certain types of renewable “energy property.” Energy property eligible for the ITC includes solar equipment, geothermal equipment, fuel cells, combined heat and power systems, and microturbine equipment. The ITC is either 10% or 30% of the qualified basis of energy property placed in service during a tax year. Solar equipment is eligible for a 30% ITC.

The production tax credit (“PTC”) under section 45 of the IRC is a federal tax credit for producing electricity from certain renewable sources at a “qualified facility” and selling such electricity to an unrelated person. The PTC is based on kilowatt hours of electricity produced at qualified facility in a taxable year and is payable over a 10-year period beginning on the date the qualified facility producing the renewable electricity was originally placed in service.

A taxpayer may elect to treat certain property eligible for the PTC as energy property for which a 30% ITC is available in lieu of the PTC. These PTC-eligible facilities include certain wind, closed-loop biomass, open-loop biomass, geothermal, landfill gas, trash, qualified hydropower, and marine and hydrokinetic renewable energy facilities that are placed in service after 2008 and the construction of which begins before Jan. 1, 2014.

In addition to the ITC and PTC, under Section 1603 of the American Recovery and Reinvestment Tax Act of 2009, a cash grant was available for projects placed in service (or for which construction began between 2009 and 2012) that were eligible for the ITC or PTC (“1603 Grant”). The number of projects not yet placed in service that will be eligible for the 1603 Grant based on beginning construction prior to 2012 is dwindling significantly. Nevertheless, 1603 Grant projects may be the subjects of future securitizations.

The ITC is subject to recapture rules that can be triggered if the taxpayer claiming the ITC disposes of its direct (or indirect, in the case of ownership through a pass-through entity) interest in a renewable energy project. See IRC '50; Treasury Regulations ' 1.47-6. These recapture rules are a key consideration from a federal income tax perspective when securitization structures are being considered. The amount of ITC that is subject to recapture decreases by 20% each year of a five-year recapture period, beginning on the placed in service date for the relevant renewable energy equipment. Where a lessor has elected to pass through the ITC to a lessee, as described below, recapture can also be triggered upon a termination of the master lease. In addition, a disposition of the renewable energy equipment itself, for example, due to lender foreclosure, can trigger recapture.

The 1603 Grant guidance also contains recapture rules, but these rules are significantly more liberal than the ITC recapture rules and would not necessarily be triggered upon an ownership transfer or lease termination, so long as the transferee of the equipment or ownership interest is not a “disqualified person.” Such “persons” include, broadly, governmental entities, tax-exempt organizations, and non-U.S. persons who are not subject to U.S. income tax under IRC ' 168(h)(2)(B). PTCs are not subject to the same recapture rules because they accrue over time to the taxpayer then in possession of the renewable energy equipment.

Common Tax Equity Investment Structures

Lease Structures

The owner of renewable energy property eligible for either the ITC or 1603 Grant may elect to “pass through” the ITC or 1603 Grant to the lessee of such property. Pursuant to this election, the lessee is treated for ITC and 1603 Grant purposes, as having acquired the property for an amount equal to the fair market value of the property on the date of transfer. See IRC ' 50(d)(5).

In a typical “inverted lease structure,” an entity owned by the Sponsor (the “Lessor”) generally enters into Host Customer PPAs and leases for potential solar projects, and will develop such projects, which will be eligible for the ITC or 1603 Grant. The Lessor then leases these solar projects (prior to their placed in service dates) to a Tax Equity Investor (the “Lessee”) pursuant to a master lease. The Lessor and Lessee elect to pass through either the ITC or the 1603 Grant to the Lessee/Tax Equity Investor.

After the solar projects are leased to the Lessee, the Lessee makes rental payments to the Lessor, and the Host Customers make payments to the Lessee under their leases or PPAs. Often, the Lessee's rental payments are prepaid upfront at the commencement of the solar project leases under the master lease.

In a sale leaseback structure, the Sponsor develops a portfolio of potential solar projects with Host Customer leases and PPAs, and then sells these projects to a lessor (typically owned by the Tax Equity Investor) for a purchase price. The lessor leases the projects back to the lessee (or Sponsor) pursuant to a master lease. The lessee makes rental payments to the lessor, and the Host Customers make payments under their leases or PPAs to the lessee. Since the lessor (or Tax Equity Investor) is the owner of the solar project, the lessor is entitled to depreciation deductions with respect to the energy property installed on Host Customer property. The ITC or 1603 Grant is either claimed by the lessor/Tax Equity Investor, as owner of the energy property, or is passed through to the lessee/Sponsor.

Securitization Options for Lease Structures

There are several options for securitizing the lease structures described above. Notes might be issued at either the lessor or lessee entity, and secured by revenue streams from the Host Customer PPAs or subleases. No recapture of the ITC or 1603 Grant would be triggered as a result of these note issuances if the master lease and the ownership of the lessor and lessee entities remain in place and unchanged.

If the lessee is the Tax Equity Investor and the lessor receives the proceeds of the note issuance, the lessor might use the securitization proceeds to refund a portion of any rent prepayment made by the lessee under the Master Lease. The lessee would then be obligated to pay periodic rent to the lessor. In either of the above potential structures, forbearance agreements may need to be negotiated with the lenders to prevent (or provide cure rights in an attempt to prevent) foreclosure during the five-year recapture period.

Another option in the 1603 Grant context is for the lessor to terminate the master lease by making a payment or providing other consideration to the lessee in exchange for terminating the lessee's leasehold interest. The leases and PPAs with the Host Customers are then held directly by the lessor, which receives the proceeds of the securitization. If the securitization occurs during the five-year recapture period, this option is only available for 1603 Grant projects because termination of the lease triggers recapture of the ITC.

Partnership Flip Structure

In a partnership flip structure, the Sponsor and the Tax Equity Investor form a joint venture taxed as a partnership (the “Partnership”). The Partnership enters into leases or PPAs with Host Customers and owns the underlying solar projects.

The Partnership is referred to as a “flip” partnership because book tax profits and losses (as well as ITC and depreciation deductions) are generally initially allocated 99% to the Tax Equity Investor and 1% to the Sponsor, and then “flip” after a specified event or period in time so that book tax profits and losses are allocated 5% to the Tax Equity Investor and 95% to the Sponsor. Distributions of cash may or may not follow the same allocation ratios as book tax profit and loss, but generally also “flip” to a different ratio at the same time as the book tax profit and loss allocations flip.

Securitization of Flip Partnership Structure

The partnership (or an affiliate) in a Flip Partnership structure may securitize the cash flows from Host Customers by issuing notes secured by rental payments and PPA payments from the Host Customers. The proceeds of this securitization might be distributed out to the partners in accordance with the distribution provisions of its partnership or operating agreement.

In order to avoid recapture of the ITC (but not the PTC or 1603 Grant), the partners must remain as such in the partnership during the five-year recapture period, except that transfers of interests equal to less than 33.33% of the partner's interest in book tax profits of the partnership would not trigger recapture. Additionally, consideration must be given to the tax treatment of the distributions to insure that the distributions are not treated as disguised sales.

PTC Structures

There are also possible securitization-like structures in which the value of PTCs arising from wind portfolios effectively becomes part of the securitized asset package. Typically, the value of the PTCs is secured by a parent guarantee or a lender recapitalization option that would permit the lender to obtain more of the cash flow of the underlying projects without preventing the taxpayer owner from maintaining its interest in the PTCs.

Conclusion

This article offers only a brief overview of the types of renewable energy project securitizations that might be done and the high level considerations. We anticipate that there may be more securitizations occurring in the near future in this space as investors seek new financing structures for renewable energy projects.

Madeline Chiampou Tully , Perry Sayles , John T. Lutz and Philip Tingle are partners in the law firm of McDermott Will & Emery LLP. Chiampou Tully, Sayles and Lutz are based in the firm's New York office and Tingle is based in Miami. They can be reached at [email protected], [email protected], [email protected]'and [email protected], respectively. The authors gratefully acknowledge the assistance of tax associate Amy Drake in the preparation of this article.

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.

To successfully structure a securitization, the following elements usually are necessary:

• A predictable cash flow: The underlying assets should have a well-established payment history.
• Overcollateralization: The face value of the underlying assets should exceed the principal amount of the debt issued, with reserves established for particular risks.

Servicing capability: An entity with the appropriate experience and resources should be appointed to collect payments on the underlying assets (and if such entity is the sponsor of the securitization, it may also be necessary to have a third-party servicer available to step in to perform such functions if the sponsor defaults).

The ability to enforce over the underlying security: The security agent acting for the investors should be able to trap cash flows, and take control of the assets that generate such cash flows.

Consistent credit underwriting standards: The parties obligated to pay on the underlying assets should be subject to credit underwriting standards satisfactory to the investors.

Diversification: The pool of parties obligated to make payments on the underlying assets should be as diversified as possible.

Standardized underlying agreements: In situations where there is large pool of underlying assets, the terms of such underlying assets should generally be consistent, so that investors and rating agencies (if applicable) can more easily assess and compare risks and monitor the performance of the transaction.

Payments due under leases or power purchase agreements with residential or commercial customers are financial assets that are easily capable of securitization, and companies that distribute residential solar systems have begun to take advantage of securitization as a means of financing their operations.

Key Elements of the Recent SolarCity Securitization

In November 2013, SolarCity closed what has been identified as the first widely issued residential solar securitization. The securitization involved the private placement of approximately $54 million of secured notes that were rated “BBB+” by Standard & Poor's. The underlying assets consisted of payments under power purchase agreements (“PPAs”) and leases with approximately 5,000 customers, primarily residential but also commercial (“Host Customers”).

The transaction did not have all of the features typically sought in a securitization, but the structure was deemed sufficiently robust to receive a “BBB+” rating. For example, although geographic diversification is often considered important for consumer receivable securitizations, the customers for the SolarCity transaction were located primarily in California, Colorado and Arizona, all states with reliable sunshine. In addition, although the secured notes matured after 13 years, the power purchase agreements and leases had terms of 20 years. Based on rating scenarios run by Standard & Poor's, however, cash flows generated in the first 13 years were deemed sufficient to pay all interest and principal on the secured notes on a timely basis.

In its published ratings report, Standard & Poor's listed as strengths of the transaction, among others, the facts that: 1) the initial note principal amount was only 62% of the aggregate discounted value of all payments under the power purchase agreements and leases; 2) there was an interest reserve covering six months of interest payments, as well as a specific reserve to cover anticipated inverter replacement costs; 3) the solar assets had an average age of only two years; 4) the notes had an early amortization feature that was triggered if a debt service coverage ratio was not satisfied; and 5) an experienced trustee was appointed to step-in as servicer if required.

Weaknesses identified by Standard & Poor's included: 1) a limited performance history for the asset class and the customer pool; 2) legislative uncertainty as to the benefits provided for using solar energy; 3) the inherent unpredictability and variability of cash flows based on solar energy production; 4) differences in solar panel quality across manufacturers; 5) the availability of other sources of energy, including other renewable technologies; 6) the risk of customers seeking to renegotiate the terms of their power purchase agreements and leases; and 7) the risk of solar system failures hampering cash collections. However, such weaknesses were mitigated by having a customer pool with high FICO scores or (in the case of commercial customers) investment grade ratings, low levels of default on existing SolarCity systems, the likelihood that customers would continue to make payments as long as there was a meaningful value proposition, the use of an independent engineer to assess solar production estimates and panel quality and the fact that most systems had been installed for two years and most failures occur in the first two years.

Securitization Considerations

Introduction to Renewable Tax Equity Investments

Investors (“Tax Equity Investors”) and renewable energy developers (“Sponsors”) have entered into a variety of tax equity structures intended to enable the Tax Equity Investor to share in the cash flow, tax credits and/or depreciation deductions associated with a renewable energy project. In the discussion below, we use a portfolio of residential solar projects as the representative renewable energy tax equity project.

Background on Renewable Energy Federal Tax Credits

The investment tax credit (“ITC”) under section 48 of the Internal Revenue Code (“IRC”) is a one-time federal tax credit based upon the amount of capital investment as of the placed in service date for certain types of renewable “energy property.” Energy property eligible for the ITC includes solar equipment, geothermal equipment, fuel cells, combined heat and power systems, and microturbine equipment. The ITC is either 10% or 30% of the qualified basis of energy property placed in service during a tax year. Solar equipment is eligible for a 30% ITC.

The production tax credit (“PTC”) under section 45 of the IRC is a federal tax credit for producing electricity from certain renewable sources at a “qualified facility” and selling such electricity to an unrelated person. The PTC is based on kilowatt hours of electricity produced at qualified facility in a taxable year and is payable over a 10-year period beginning on the date the qualified facility producing the renewable electricity was originally placed in service.

A taxpayer may elect to treat certain property eligible for the PTC as energy property for which a 30% ITC is available in lieu of the PTC. These PTC-eligible facilities include certain wind, closed-loop biomass, open-loop biomass, geothermal, landfill gas, trash, qualified hydropower, and marine and hydrokinetic renewable energy facilities that are placed in service after 2008 and the construction of which begins before Jan. 1, 2014.

In addition to the ITC and PTC, under Section 1603 of the American Recovery and Reinvestment Tax Act of 2009, a cash grant was available for projects placed in service (or for which construction began between 2009 and 2012) that were eligible for the ITC or PTC (“1603 Grant”). The number of projects not yet placed in service that will be eligible for the 1603 Grant based on beginning construction prior to 2012 is dwindling significantly. Nevertheless, 1603 Grant projects may be the subjects of future securitizations.

The ITC is subject to recapture rules that can be triggered if the taxpayer claiming the ITC disposes of its direct (or indirect, in the case of ownership through a pass-through entity) interest in a renewable energy project. See IRC '50; Treasury Regulations ' 1.47-6. These recapture rules are a key consideration from a federal income tax perspective when securitization structures are being considered. The amount of ITC that is subject to recapture decreases by 20% each year of a five-year recapture period, beginning on the placed in service date for the relevant renewable energy equipment. Where a lessor has elected to pass through the ITC to a lessee, as described below, recapture can also be triggered upon a termination of the master lease. In addition, a disposition of the renewable energy equipment itself, for example, due to lender foreclosure, can trigger recapture.

The 1603 Grant guidance also contains recapture rules, but these rules are significantly more liberal than the ITC recapture rules and would not necessarily be triggered upon an ownership transfer or lease termination, so long as the transferee of the equipment or ownership interest is not a “disqualified person.” Such “persons” include, broadly, governmental entities, tax-exempt organizations, and non-U.S. persons who are not subject to U.S. income tax under IRC ' 168(h)(2)(B). PTCs are not subject to the same recapture rules because they accrue over time to the taxpayer then in possession of the renewable energy equipment.

Common Tax Equity Investment Structures

Lease Structures

The owner of renewable energy property eligible for either the ITC or 1603 Grant may elect to “pass through” the ITC or 1603 Grant to the lessee of such property. Pursuant to this election, the lessee is treated for ITC and 1603 Grant purposes, as having acquired the property for an amount equal to the fair market value of the property on the date of transfer. See IRC ' 50(d)(5).

In a typical “inverted lease structure,” an entity owned by the Sponsor (the “Lessor”) generally enters into Host Customer PPAs and leases for potential solar projects, and will develop such projects, which will be eligible for the ITC or 1603 Grant. The Lessor then leases these solar projects (prior to their placed in service dates) to a Tax Equity Investor (the “Lessee”) pursuant to a master lease. The Lessor and Lessee elect to pass through either the ITC or the 1603 Grant to the Lessee/Tax Equity Investor.

After the solar projects are leased to the Lessee, the Lessee makes rental payments to the Lessor, and the Host Customers make payments to the Lessee under their leases or PPAs. Often, the Lessee's rental payments are prepaid upfront at the commencement of the solar project leases under the master lease.

In a sale leaseback structure, the Sponsor develops a portfolio of potential solar projects with Host Customer leases and PPAs, and then sells these projects to a lessor (typically owned by the Tax Equity Investor) for a purchase price. The lessor leases the projects back to the lessee (or Sponsor) pursuant to a master lease. The lessee makes rental payments to the lessor, and the Host Customers make payments under their leases or PPAs to the lessee. Since the lessor (or Tax Equity Investor) is the owner of the solar project, the lessor is entitled to depreciation deductions with respect to the energy property installed on Host Customer property. The ITC or 1603 Grant is either claimed by the lessor/Tax Equity Investor, as owner of the energy property, or is passed through to the lessee/Sponsor.

Securitization Options for Lease Structures

There are several options for securitizing the lease structures described above. Notes might be issued at either the lessor or lessee entity, and secured by revenue streams from the Host Customer PPAs or subleases. No recapture of the ITC or 1603 Grant would be triggered as a result of these note issuances if the master lease and the ownership of the lessor and lessee entities remain in place and unchanged.

If the lessee is the Tax Equity Investor and the lessor receives the proceeds of the note issuance, the lessor might use the securitization proceeds to refund a portion of any rent prepayment made by the lessee under the Master Lease. The lessee would then be obligated to pay periodic rent to the lessor. In either of the above potential structures, forbearance agreements may need to be negotiated with the lenders to prevent (or provide cure rights in an attempt to prevent) foreclosure during the five-year recapture period.

Another option in the 1603 Grant context is for the lessor to terminate the master lease by making a payment or providing other consideration to the lessee in exchange for terminating the lessee's leasehold interest. The leases and PPAs with the Host Customers are then held directly by the lessor, which receives the proceeds of the securitization. If the securitization occurs during the five-year recapture period, this option is only available for 1603 Grant projects because termination of the lease triggers recapture of the ITC.

Partnership Flip Structure

In a partnership flip structure, the Sponsor and the Tax Equity Investor form a joint venture taxed as a partnership (the “Partnership”). The Partnership enters into leases or PPAs with Host Customers and owns the underlying solar projects.

The Partnership is referred to as a “flip” partnership because book tax profits and losses (as well as ITC and depreciation deductions) are generally initially allocated 99% to the Tax Equity Investor and 1% to the Sponsor, and then “flip” after a specified event or period in time so that book tax profits and losses are allocated 5% to the Tax Equity Investor and 95% to the Sponsor. Distributions of cash may or may not follow the same allocation ratios as book tax profit and loss, but generally also “flip” to a different ratio at the same time as the book tax profit and loss allocations flip.

Securitization of Flip Partnership Structure

The partnership (or an affiliate) in a Flip Partnership structure may securitize the cash flows from Host Customers by issuing notes secured by rental payments and PPA payments from the Host Customers. The proceeds of this securitization might be distributed out to the partners in accordance with the distribution provisions of its partnership or operating agreement.

In order to avoid recapture of the ITC (but not the PTC or 1603 Grant), the partners must remain as such in the partnership during the five-year recapture period, except that transfers of interests equal to less than 33.33% of the partner's interest in book tax profits of the partnership would not trigger recapture. Additionally, consideration must be given to the tax treatment of the distributions to insure that the distributions are not treated as disguised sales.

PTC Structures

There are also possible securitization-like structures in which the value of PTCs arising from wind portfolios effectively becomes part of the securitized asset package. Typically, the value of the PTCs is secured by a parent guarantee or a lender recapitalization option that would permit the lender to obtain more of the cash flow of the underlying projects without preventing the taxpayer owner from maintaining its interest in the PTCs.

Conclusion

This article offers only a brief overview of the types of renewable energy project securitizations that might be done and the high level considerations. We anticipate that there may be more securitizations occurring in the near future in this space as investors seek new financing structures for renewable energy projects.

Madeline Chiampou Tully , Perry Sayles , John T. Lutz and Philip Tingle are partners in the law firm of McDermott Will & Emery LLP. Chiampou Tully, Sayles and Lutz are based in the firm's New York office and Tingle is based in Miami. They can be reached at [email protected], [email protected], [email protected]'and [email protected], respectively. The authors gratefully acknowledge the assistance of tax associate Amy Drake in the preparation of this article.