SITUATION: Saskatchewan Developer Client was referred to President of Capital Dynamics by a Vancouver financing group which, itself required assistance to locate applicable capital stack for project. Upon written engagement with Developer, Capital Dynamics President, Murray Schultz, brought in his financing team to study options and liaise with prospective funders. Although developer had encouraging data from historic deep oil well drilling in the area, work was required to confirm the existence of similar deep hot water resource at the site of planned facility and electrical sub-station. Developer had secured up to $8 Million input value from a local construction company (EPC) in return for equity in the project; expenses which were to be offset by up to $20 Million in Federal grant money, applied for, and drawn down upon, annually, in arrears. One million of this grant money had already been consumed in pre-development.
Mr. Schultz held discussions with several funders, including representatives of a group which had already invested in Geothermal power in the USA. Responses suggested that, in the absence of a new 15,000 ft. production well, to prove-up a thermal resource of sufficient size and temperature, the project was too early to attract institutional financing. But, with attachment to government grants and a commitment to build-out a full 25 MW of deliverable power to reach minimum deal size, capital could be structured for the project. This would require some indication from the Saskatchewan government re: purchase of power from each successive 5 MW phase of operations. Although unofficial sources suggested governmental cooperation, only the initial 5 MW had been secured by power purchase agreement at that time. Further, the developer was to have started drilling on its first production well in June 2017, expending a portion of its $8 Million commitment from equity partner, with completion and data analysis by calendar year end 2017. We understand that this work was subsequently pushed back one year, with drilling scheduled for June 2018.
OUTCOME: After several attempts to broker meaningful discussions, it became clear that the project principals and potential funders were too far apart re: respective criteria for entering into funding agreement. Tacit agreement to revisit when, and if, further developments warranted additional time and effort.
SECTOR: Commercial Electrical Power Generation
CATEGORY: Renewable Energy
TECHNOLOGY: Wind Farm
SITUATION: Developer Client came to the President of Capital Dynamics seeking a solution to a financing dilemma. If successful in attracting a private equity investment (not a sure thing at all, based on the prevailing wholesale rate for wind power) would they be able to maintain control of considerable federal power production tax credits? Although the business was to be based on skinny per/kW revenue, the likely power purchasing Utility enjoyed a stellar credit rating and could enter into a long term power purchase contract.
Fortunately, the Developer had the perspective to align itself with a well known Turbine Manufacturer and Wind Farm Operator. Further, the building site was in a well known wind corridor where access to the local power grid was unrestricted.
ENGAGEMENT: Developer engaged Capital Dynamics President, Murray Schultz, to review the business plan and accompanying strategy re: acquiring a financial partner. Mr. Schultz correctly identified potential difficulties with then-current financing strategy and moved to bring in a NY-based wind power financing expert, where recent experience pointed to a possible credit enhancement by virtue of a proposed off-take agreement. Through several iterations of pro forma financials, designed to satisfy the power purchasing utility’s traditional cost structure, the parties factored-in the cost of capital for both available debt and equity. It was decided that through the application debt at reasonable and unchanging interest rate, the project could meet Developer’s criteria, Utility’s criteria and Lender’s criteria. In order for the Developer to maintain control of substantial federal tax credits, its legal council was required to write an opinion letter indemnifying the lender from liability associated with potential claw-back of tax credit sale or monetization, should the project not generate its stated power output over time.
OUTCOME: Offer to Lend +300 Million at advantageous commercial rate. We were able to bring to the table a Mid-west commercial lender which was amenable to providing 100% of the capital necessary to mount and complete project. It was agreed that the power production tax credits would be made available for monetization or sale only at the end of each operating year, when fully earned, thus carrying no claw-back liability.
SECTOR: Water
CATEGORY: Municipal Water Supply
TECHNOLOGY: Semi-Permeable Membrane Desalination
SITUATION: California developer Client was referred the President of Capital Dynamics by corporate attorney in Delaware. Developer, a retired civil engineer, claimed that he and associates had both the land and the technology with which to provide a solution for the fresh water water shortage in the Monterrey Peninsula area. Moreover this solution would benefit from a state government edict which fast tracked all water projects. The requirement was for capital to both acquire the land (some 200 acres of industrial-zoned property on the waterfront in upper Monterrey Bay) and order equipment from a well known desalination manufacturer with large presence in the USA. Notwithstanding the real possibility that the California Coastal Commission, among others, would need to review and approve plans, the developer was adamant that his solution would comply and/or be exempt from slowdowns associated with regulation and review. Approximately $1 million dollars has been spent on development to that date. Although the land owner appeared to have similar plans of his own, those plans were well past their freshness date and, according to the developer, would have a slim chance of being approved. The developer had entered into negotiations to acquire the land and price/terms had been agreed to in principal. The project budget would be $125 Million, which was supported by a well delineated design/build plan and associated documentation.
ENGAGEMENT: Developer engaged Capital Dynamics President, Murray Schultz, to assist in improving the business plan and financial projections ahead of effort to acquire financial partner. Mr. Schultz entered into written contract with developer whereby, in return for investing time and expertise “on spec”, he would earn an equity position in addition to fees from financing, sufficient to offset time and costs. Over the course of time, more than 400 hours were spent in development, discussion, due diligence, presentation to prospective funders, re-calibration of business plan and generally supporting developer, inclusive of travel to the US to conduct a site and general area inspection.
OUTCOME: Mr. Schultz presented project to both a large US mezzanine debt provider and San Francisco office of a large Chinese bank. Both parties expressed interest in proceeding, subject to successful completion of due diligence. Debt provider created a liaison with the Chinese bank, in order to dovetail the two sets of financing, and presented its financing proposal and prepared contracts for the developer to sign. Bank indicated it was prepared to proceed subject to receipt of the developer’s corporate tax returns. The developer initially indicated he was prepared to proceed but elected not to provide such information and, subsequently, both offers to finance were withdrawn.
SECTOR: Commercial Electrical Power Generation
SECTOR: Commercial Electrical Power Generation