Renewable project sponsors and tax equity investors are beginning to come to terms despite uncertainty over tax reform, allowing financings to trickle through.
President Donald Trump’s plan to reduce corporate tax rates and simplify the tax code, an ambitious proposition at the best of times, has been overshadowed of late by the administration’s other problems, which have been well documented elsewhere.
Nevertheless, the risk that a change to tax rules could undermine the economic rationale for an investment remains a concern. A steady flow of unpredictable headlines has led deal watcher attitudes on tax reform to swing from one week to the next (PFR, 4/6).
“Tax equity investors won’t close anything until they know what their return will be,” says a New York-based financier at a European bank that mainly looks at contracted assets.
But last month, Canadian Solar announced a tax equity commitment for a 73 MW solar project in North Carolina after negotiating a deal that satisfied the investor, U.S. Bank (PFR, 4/25).
CohnReznick Capital advised Canadian Solar on the financing, which also included a tax equity bridge and term loan package provided by Prudential Capital Group.
The sponsor "was able to structure an investment with US Bank that mitigates the potential impact of changes in tax law, while preserving strong sponsor economics," the company's chairman and ceo Shawn Qu recently told PFR via e-mail. "Today, lenders continue to be very active and project financing is available for high quality projects," he added.
And last week, Bank of New York Mellon filed for regulatory approval of a tax equity investment in an almost 300 MW wind project portfolio spread across three states (PFR, 5/15).
Still, renewables bankers are not seeing a ton of deals, and that means it’s a borrower’s market, says one. The situation is exacerbated, he says, by the refinancing of LNG projects in the capital markets, which frees up banks’ balance sheets to lend more.
Cheniere Energy returned to the high yield market on May 15 with a $1.5 billion deal for its Corpus Christi export facility that will be used to repay bank loans (PFR, 5/15).