On October 7, 2009, the U.S. Department of Energy (“DOE”) introduced the Financial Institution Partnership Program (“FIPP”) under Solicitation Number DE-FOA-0000166 (“Solicitation 166”) titled Federal Loan Guarantees for Commercial Technology Renewable Energy Generation Projects under the Financial Institution Partnership Program. This program is designed to expedite the DOE’s loan guarantee underwriting process while minimizing the DOE’s risk by utilizing private sector expertise and resources. Under the FIPP program, applicants interested in receiving a DOE loan guarantee would work with private sector lenders instead of applying to the DOE directly. The private sector lender, after making an assessment of the project, would apply for a loan guarantee under a FIPP Solicitation, such as Solicitation 166, to access a loan guarantee.
Title XVII was amended by the American Recovery and Reinvestment Act of 2009 (“Recovery Act”) to create Section 1705 under Title XVII. Section 1705 was designed so that the DOE could help rapidly deploy the following types of eligible projects: (i) renewable energy systems; (ii) electric power transmission projects; and (iii) leading edge biofuel projects. FIPP and Solicitation 166 is an implementation of the Section 1705 Program and does not replace or change it. While Solicitation 166 is limited to renewable energy systems, the DOE anticipates issuing additional FIPP solicitations that will afford lender-applicants the opportunity to apply for other categories of Section 1705 projects.
Solicitation 166, unlike DOE Solicitation DE-FOA-0000140 (the only other currently open DOE Solicitation), does not require the eligible project to employ “new or significantly improved technology”. However, interested financial institutions who wish to apply under Solicitation 166 are strongly encouraged to verify that their proposed Borrowers’ projects are not eliminated by other threshold determinations listed in the Solicitation. For example, a project will not qualify for a loan guarantee under Solicitation 166 if: (i) it is being built outside the United States; (ii) it is not a commercially viable product or service in the use proposed in the application; (iii) it will not commence construction on or before September 30, 2011; or (iv) the loan or debt obligation of the Borrower is not expected to have a credit rating of at least “BB” from Standard & Poor’s or Fitch or “Ba2” from Moody’s (or its equivalent form a nationally recognized ratings agency) without the benefit of any DOE loan guarantee or any other credit support which would not be available to the DOE.
For Solicitation 166, the guarantee percentage of the Guaranteed Obligation is limited to no more than 80% of the maximum aggregate principal amount of, and interest on, the Guaranteed Obligation during its term. A Guaranteed Obligation is defined as any loan or other debt obligation of the Borrower of which the DOE guarantees any portion of, and this amount is limited to 80% of the total Project Costs.
Solicitation 166 will require participating financial institutions to share in a significant amount of the risk of the Guaranteed Obligation, but on a pari-passu basis with the DOE as guarantor. Financial institutions that wish to participate are therefore expected to evaluate and receive credit approval of the Guaranteed Obligation in accordance with their standard internal credit policies and procedures for comparable senior debt transactions as if the Guaranteed Obligation were not partially guaranteed.
Of the approximately $3,935,000,000 in appropriated funds that has been made available under the Recovery Act, the DOE will make up to $750,000,000 available to pay Credit Subsidy Costs relating to Solicitation 166. This funding has been projected by some to cover as much as $4 billion to $8 billion in lending to eligible projects.
The DOE encourages interested financial institutions to apply as early as possible and will review Part I applications on a continuous basis as they are received. Part I submissions may be filed at any time prior to the filing of a Part II submission. The DOE will assess each Part I submission and notify applicants of their findings. Upon such notification, an applicant will decide whether it will submit a more comprehensive Part II submission. There will be ten rounds of review for Part II submissions; the first round cut off date is November 23, 2009. Part II submissions will be reviewed competitively against all other Part II submissions filed with the DOE during the given round and applicants competing in earlier rounds of Part II reviews will enjoy a first mover’s advantage in terms of order of priority of review. The last Part II submission due date is January 6, 2011. The DOE hopes to inform any Part II applicants of their decision within two months from the submission due date. Financial institutions applying under this solicitation must pay the following application fees: $12,500 due upon submission of a Part I application and $37,500 due upon the submission of a Part II application. The application fees cannot be from funds obtained from the federal government, including from any loan or other instrument guaranteed by the federal government.
An “Eligible Lender” is any person or legal entity formed for the purpose of, or engaged in the business of lending money that fulfills the requirements of Section 609.11 of Attachment G in Solicitation 166. Some of the key requirements include that the entity: (i) not be debarred or suspended from participation in a Federal government contract; (ii) not be delinquent on any Federal debt or loan; and (iii) has access to or direct experience in originating and servicing loans for commercial projects similar in size and scope to the project under consideration. Eligible entities engaged in the business of lending money include commercial banks, savings and loan institutions, insurance companies, factoring companies, investment banks, institutional investors, venture capital investment companies and trusts. While the DOE does not currently plan to utilize independent consultants and outside legal counsel in connection with its review, it reserves its right to do so. Upon the DOE’s use of independent consultants and outside legal counsel, the proposed Borrower or Project Sponsor shall be responsible for paying the resulting fees and expenses.
Craig M. Kline
Jill M. Webb