The OCC issued an interpretive letter (“Letter #1139”), in which the OCC concluded that a national bank (the “Bank”) could provide financing for a renewable energy solar project (the “Facility”) in which the financing was structured as an investment by the Bank in the company (the “Company”) that owned the Facility. The structure of the financing was selected to permit the Bank to receive federal renewable energy tax credits and thereby reduce the cost of the financing provided for the Facility.
In concluding that the Bank’s proposed investment in the Facility is permissible, the OCC in Letter #1139 noted that the structure of the financing is consistent with industry practice and would be made at the request of the sponsor of the Facility. In addition, the Bank was required to represent to the OCC that the Bank’s decision to extend financing for the Facility would be based upon a full credit review of the transaction (including a determination that the proposed financing met the Bank’s standard loan underwriting criteria) and that the credit review, among other things, would demonstrate that the Bank would recoup its investment “in a reasonable period of time (including consideration of tax credits and depreciation benefits) … and would not place undue reliance on disposition of its interest [in the Facility] following expiration of the tax credits.”
Under the facts presented in Letter #1139 the Bank would acquire an approximately 70% membership interest in the Company and the remaining membership interests in the Company would be held by the Facility’s sponsor, which would also serve as the managing member of the Company. Moreover, the Bank represented to the OCC that it would not participate in the operation of the Facility, the production of the solar energy, or the sale of the solar energy. Furthermore, if the Facility were to perform poorly, the Bank would have a number of available remedies to attempt to recoup the value of its investment including the right to sell the Bank’s entire interest in the Company.
In reaching its conclusion that the Bank’s proposed investment in the Company would be permissible the OCC determined, that other than the form of interest proposed to be acquired by the Bank, “the proposed financing is substantially identical to a loan transaction” and would be authorized under 12 U.S.C. §24 (Seventh). Among the conditions to the interpretive relief that the OCC granted to the Bank in Letter #1139 are conditions that the Bank: (1) must limit its financing transactions for renewable energy projects to no more than three (3)% of its capital and surplus; and (2) must purchase sufficient insurance to account for the risk of damages to or destruction of the Facility.