On October 7, 2009, the U.S. Department of Energy (DOE) announced the creation of a new loan guarantee program, referred to as the Financial Institution Partnership Program (FIPP). Simultaneously, DOE issued the first solicitation under the FIPP for conventional renewable energy generation projects, which is being funded through the American Recovery and Reinvestment Act of 2009.

The FIPP implements a new loan guarantee application process developed by DOE, under which a qualified financial institution (Lender-Applicant) may apply, individually or on behalf of a group of financial institutions that have designated such institution as their agent for this purpose, for a partial, risk-sharing loan guarantee to support the financing of an eligible project. Proposed borrowers are not permitted to apply directly to DOE for loan guarantees under this program.

The first solicitation under the FIPP invites partial, risk-sharing loan guarantee applications solely to support commercial technology renewable energy generation projects, such as wind, solar, biomass, geothermal, and hydropower facilities that are the most assured of commencing construction no later than September 30, 2011, consistent with the "rapid deployment" requirement of Section 1705 under Title XVII of the Energy Policy of 2005 (Title XVII). Under the solicitation, DOE will make available up to $750 million to pay the credit subsidy costs of loan guarantees made available under the solicitation for eligible projects. DOE estimates that this funding will cover the cost of loan guarantees that could support as much as $4 to $8 billion in private lending to eligible projects. The solicitation indicates that a separate solicitation under the FIPP for commercial renewable energy manufacturing projects eligible under Section 1705 under Title XVII will be forthcoming.

Under the solicitation, the DOE's guarantee percentage of the guaranteed obligations (i.e., lender-financed project costs) will be limited to no more than 80 percent of the guaranteed obligation during its term. Accordingly, the Lender-Applicant and other participating financial institutions, as applicable, will be required to share in a significant amount of risk in the guaranteed obligations on a pari passu basis with DOE.

Guaranteed obligations are expected to be "traditional" senior secured debt, structured in accordance with customary market terms applicable to high-quality, limited or non-recourse, long-term, energy project finance transactions and not modified to accommodate tax-oriented investment structures. The project must be expected to have, whether structured on a project finance or a corporate finance basis, a credit rating from a nationally recognized rating agency of at least a credit rating of "BB" from Standard & Poor's or Fitch or "Ba2" from Moody's, without the benefit of any DOE guarantee or any other credit support that would not be available to DOE.

Applications under the solicitation will consist of two parts. Part I applications may be filed at any time prior to the filing of a Part II application and will be reviewed by DOE on a continuous basis. Part I applications are expected to provide DOE with a summary level description of the applicable project and its creditworthiness, project eligibility, financing strategy, and compliance of the proposed funding program with the requirements of the solicitation. Part II application submissions must include remaining items required under the solicitation and be filed following DOE notification to the Lender-Applicant regarding its assessment of the Part I submission and no later than 11:59 p.m. Eastern Time on any of the due dates for the ten rounds of Part II submissions set forth in the solicitation and in no event later than 11:59 p.m. on January 6, 2011, the due date for the final round of Part II submissions.

The objective of the FIPP is to expedite the loan guarantee process and expand senior credit capacity for the efficient and prudent financing of eligible projects under Section 1705 of Title XVII. DOE emphasized that the FIPP implements the Section 1705 loan guarantee program and does not replace or change, and is not intended in any way to replace or change, existing requirements. 

The solicitation is the eighth solicitation issued by the DOE under the Title XVII Loan Guarantee Program since its inception.

The solicitation is available at http://www.lgprogram.energy.gov.

If you have questions about the procedures or application process for the loan guarantees or need assistance in completing an application, please feel free to contact Howard H. Shafferman (hhs@ballardspahr.com; 202.661.2205) or Patrick R. Gillard (gillard@ballardspahr.com; 215.864.8536).

 


 

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