Energy blueprint
Renewable power developer Invenergy’s sale of US$580m of tax credits to Bank of America allowed the firm to raise an additional US$1.05bn of senior secured green loans by borrowing against the future payment stream in a groundbreaking acquisition deal.
Invenergy in August closed a US$1.5bn acquisition of American Electric Power’s renewable energy portfolio (1,365MW of wind and solar projects in 11 states across the US), along with private equity investor Blackstone and Canadian pension fund CDPQ.
The deal's financing was the first large-scale tax transferability transaction to close since the Inflation Reduction Act was passed in August 2022 and is a blueprint for a new climate finance market which will be used to scale renewable energy, energy transition and associated supply chain development.
“We were able to create a first-of-its-kind transaction that turned future tax credits into debt financing upfront,” said Karen Fang, global head of sustainable finance at Bank of America, which acted as the transferability underwriter, placement agent and financial adviser on the deal.
In addition to the US$580m tax credit transaction, the US$1.05bn of senior secured green loans were structured as a US$727m “back leverage” holdco loan (which allows sponsors to refinance their equity), a letter of credit and working capital facility and a US$332m tax credit transfer bridge loan.
Both tranches were structured as green loans with five-year mini-perm structures designed to fund project construction.
The senior secured green loans were provided by Santander (structuring agent and co-green loan coordinator), Rabobank (due diligence), Natixis (co-green loan coordinator) and Export Development Canada with a syndicate of bank lenders.
To use the green label, the banks had to create disclosure around the Green Loan Principles for a tax credit use of proceeds and the coordinators introduced green loan clauses via the documentation rather than a framework and second-party opinion.
The production tax credit transfer really stood out. To monetise tax credits, an Inflation Reduction Act provision known as “transferability” allows often loss-making clean energy developers to sell tax credits directly to other tax-paying companies, including banks.
“It really is a game changer,” Fang said.
Invenergy will receive cash payments from BofA when it transfers production tax credits to the bank. The deal structure gives the sponsors options about how to monetise the tax credits and flexibility to cover different tax credit commitment strategies.
As well as being a buyer, BofA is aiming to be a broker and earn a spread by redistributing tax credits to corporate clients. It has already sold more than US$100m of battery tax credits to a large US company and has a “strong pipeline” of IRA-subsidised deals in sectors including carbon capture, Fang said.
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