Q&A: Chris Roetheli, U.S. Bancorp
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Q&A: Chris Roetheli, U.S. Bancorp

Having established itself as a significant player in the tax equity market, earlier this year U.S. Bancorp expanded its remit and launched its first ever renewable tax equity syndications.

In March the bank partnered with ORIX USA Corp to syndicate a tax equity fund backing SolarCity, then in July it worked with Zions Bank to syndicate tax equity for the Red Horse 2 wind and solar project near Tucson, Arizona, owned by an affiliate of D. E. Shaw Renewable Investments.

Chris Roetheli, v.p in U.S. Bancorp’s tax equity syndications department with responsibility for new business initiatives, spoke to PFR's managing editor Olivia Feld from the bank’s headquarters in St. Louis about the need for more sources of tax equity and the bank's plans to further expand its footprint in the market.

PFR: Can you talk me through what prompted the bank to start syndicating its renewable tax equity deals?

ROETHELI: We have been an investor in renewable energy tax equity investments dating back to 2008. We have been an investor for our own accounts, so we have held the assets in our own book.

The market has grown exponentially since 2008, and we saw an opportunity to leverage the expertise that we had built up in-house to help other investors get up to speed and participate the market in the same way that we have.

The market needs more sources of tax equity. We saw an opportunity to help educate others and bring them up to speed, to ultimately bring more equity to our sponsored companies that are developing projects.

PFR: You’ve touched upon the history of your involvement in the tax equity market, can you talk me through how the strategy has evolved over the past few years?

ROETHELI: Our strategy hasn’t changed from an investor perspective. I don’t think it’s changed a lot. We predominantly participate in the investment tax credit arena, mostly in solar, but we also do some wind investment as well. But we’re predominantly a tax credit investor, and, like I said, most of that is for our own account.

I think one place where our strategy has changed during the last year or so is really in respect to expanding our reach and talking to a lot of investors who currently are on the sidelines but are interested in starting on the path toward making an investment. Ultimately we can lend a lot of credibility to a transaction when we partner with other investors and bring them in to participate with us.

PFR: What kinds of investors are you working with?

ROETHELI: We’re working with various forms of corporate entities, corporate investors, financial institutions and insurance companies. These are widely held C-corporation types of investors that have sizeable taxable income from operations that can be leveraged and offset with tax equity investments.

PFR: Can you describe the structure of your tax equity partnerships?

ROETHELI: In all instances, we will continue to have a co-investment in the project company, so we will take a primary position in the underlying partnership and then we will bring in one or more co-investors to participate alongside with us. Then we ultimately provide ongoing asset management and also some level of risk mitigation to that investor’s risk profile. We like to think we have an alignment of interests with our investors. We are going to have meaningful skin in the game and are going to be interested in the same things that they are.  

PFR: Can you give me a sense of how much the bank is going to invest into these projects this year and in the sponsors you are working with?  

ROETHELI: From an equity investment standpoint in 2015, we will make close to $1.5 billion of investments in the renewable energy sector. That’s going to run the gamut from residential solar through commercial distributed generation of solar and wind, all the way up to utility-scale solar and wind. We’re working with all the household names. I won’t provide specific names given confidentiality, but you know what’s public and I’m sure you can imagine who those folks are.

PFR: Is it fair to say you are planning on doing multiple deals with the same sponsors, or are you widening the net and looking at smaller size sponsors?

ROETHELI: We don’t have a huge interest in widening our net in terms of the reach we have, but we are working with new sponsors all the time. But what we have found is we want to put our dollars with the sponsors we have worked with in the past, and those that continue to perform, because they have proven they can perform.

PFR: Can you give me a sense of how the team is structured and who is working on deal flow? Has it grown in size or are there plans to grow the team in size?

ROETHELI: My colleague Darren Van't Hof, director of renewable energy investments, leads our renewable energy originations practice so he and his team are out there sourcing new investments. He’s got a team of business development and project management folks who serve as underwriters to structure our deals, negotiate terms, and ultimately get them through to the closing table.

We also have an asset-management team that manages our relationships on an ongoing basis and makes sure they remain in compliance and are performing as expected. That team has grown over the last couple of years quite substantially. I’d say we probably have about 25 folks dealing in various aspects of renewable energy from origination all the way through to asset management.

I sit in our syndications side of the house and we too have been growing. We also have a sizeable syndication arm in the other tax equity areas too, not the least of which is low-income housing and new markets tax credits. Those are also big areas of investment that we have and so we’ve syndicated a number of different tax credit asset classes to different corporate investors. We continue to grow in our syndication side too.

We see there are investors out there who find value in what we bring to the table, which is a proven track record, and the ability to access quality developers in a way that protects them from risk. There’s a growth story throughout the organization here, and we’re excited about that.

PFR: Do you work with any financial advisers on originating deals?

ROETHELI: Not primarily. Certainly there are one-off transactions that we may work with folks on, but for the most part we are direct sponsor facing on most transactions.

PFR: In addition to the Solar City and Red Horse 2 deals, are there other examples of tax credit syndication recently that you would be able to go into a more detail about?

ROETHELI: There certainly are more that we have worked on and that we are working on. Unfortunately, right now we are not in a position to disclose names.

PFR: You started the conversation by saying that there is a huge demand for investment. In light of the expiration of the PTC and ITC, how would you describe the climate right now?

ROETHELI: I think it is as you would imagine; there is a lot of activity right now and I think over the next 12 months there will continue to be. What happens thereafter is up in the air. But I think we still see a lot of opportunity post 2016, whether it be in the form of an extension of the credit or at the 10% level. We think there still will be a lot of activity that is viable and makes economic sense.

PFR: Do you get the sense that there will be a further renewal of the PTC and that the ITC can get further stretched out?

ROETHELI: We know that the Senate Finance Committee has proposed an extension of the PTC and that it’s working its way through the Senate now. Your guess is as good as mine on the ITC side. I imagine next year at around this time we’ll be talking about that in depth.

PFR: In terms of the wider plans, is the bank planning to go beyond the scope of tax equity in terms of project financing or M&A financing?

ROETHELI: The short answer to that is not at the moment. But as we continue to get more comfortable with the asset class overall and the risk parameters through our tax equity investing, I think we’ll continue to explore opportunities where it makes sense.

PFR: Can you give me a profile of the kind of sponsors you are working with, in terms of size, geography and portfolio?

ROETHELI: Ultimately we will work with any sponsor who has strong sponsorship, so good financial backing. That’s obviously a critical component to how we put our dollars to work. We want to work with folks who can prove they have the ability to execute and deliver on promises that they make. To the extent that folks have a track record of performance and have good sponsorship behind them, we’re happy to work with those types of folks.

PFR: When you say you are supplying O&M support, can you elaborate on what you mean by that?

ROETHELI: The boots-on-the-ground O&M work is going to be done by our sponsors or anyone we contract with, so really we view ourselves as kind of the overseer of that activity. We have an asset management team that knows what they need to be looking at from a project-performance perspective; so it’s really that kind of a fund manager who is ultimately sure we are working with the appropriate folks who can perform.

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