Bank Writes Term Sheet for 1.10x DSCR with Solar Production Hedge

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A bank has laid out terms for a loan to finance a contracted solar project with a novel production hedge developed by kWh Analytics, offering a debt service coverage ratio of 1.1 times.

The term sheet is the first to be provided by a lender for a project with the hedge, called a solar revenue put, which the risk management and datafirm has been promoting for several months.

The 80 MW project is located in the southeastern U.S. and has a power purchase agreement with a utility company. The identity of the sponsor, the lender and the name and precise location of the project could not immediately be established.

The 1.1 times DSCR is “unprecedented” in solar project finance, says Richard Matsui, founder and ceo of kWh Analytics in San Francisco.

The average DSCR for solar debt in the first nine months of this year was 1.44 times, according to a survey conducted by the analytics shop (PFR, 9/11).

A lower DSCR translates into a higher leverage ratio, which boosts the levered return for the sponsor.

The solar revenue put—which is structured as an insurance policy and underwritten and distributed through kWh Analytics’ licensed insurancebrokerage subsidiary, Kudos Insurance Services—guarantees 95% of the P50 case energy production of the solar project for 10 years.”

It could allow you to finance something you wouldn’t be able to come up with your equity check for otherwise,” PJ Deschenes, a partner at boutiqueinvestment bank Greentech Capital Advisors told PFR in August. “The question is, what are you giving away to realize that?”

Matsui says the premiums are more than offset by the potential increase in returns as a result of the greater leverage.

The unidentified solar project is one of two supported by the Kudos put that were going through banks’ credit committees in August. kWh Analyticshas more than a dozen live deals at various stages.”Our intent is to keep these deals moving forward,” says Matsui. “We’re hoping to get one signed before the end of the year.”