renewable energy m&a: deal structures, key issues, and...
TRANSCRIPT
Renewable Energy M&A: Deal Structures, Key Issues, and Diligence ConsiderationsAvoiding Pitfalls in Buying and Selling Renewable Energy Projects
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TUESDAY, OCTOBER 8, 2019
Presenting a live 90-minute webinar with interactive Q&A
Matthew Bonovich, Special Counsel, Sheppard Mullin Richter & Hampton, Chicago
Becky H. Diffen, Partner, Norton Rose Fulbright US, Austin, Texas
Nathan Hoeppner, Associate General Counsel, Invenergy, Chicago
Daniel Lynch, Counsel, Akin Gump Strauss Hauer & Feld, Los Angeles
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Renewable Energy M&A: Deal Structures, Key Issues, and Diligence
Considerations When Buying and Selling Renewable Energy Projects
Matthew Bonovich
Becky H. Diffen
Nathan Hoeppner
Daniel Lynch, Counsel
From Idea to Project
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A Project Time Line
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A Project Time Line
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A Project Time Line
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Development Transfer
Build Transfer
Developer to Developer
Operating Project
Sale of Development Stage Project(Developer to Developer)
• Deal Structure
• Stage of Development - varying levels of project maturity, development ongoing versus stalled, accelerated deal pace
• Asset Sale vs Entity Sale - buyers prefer asset sale to avoid successor liability and limit diligence, but entity acquisition
sometimes necessary (e.g., assignability of critical permits)
• Purchase Price
• Often small upfront payment at closing with future payments tied to certain milestones
• Success Payments versus Royalty Payments
• Parameters surrounding success milestones (avoiding ambiguity, anticipating changes in the project, caps)
• Scope of Reps and Warranties; Covenants; Reversion Rights
• Reps and Warranties – Seller attempts to limit reps to ownership of assets; buyer seeks to receive broader reps regarding
project
• Covenants – further assurances / transition assistance; prohibition on competing developments
• Reversion Rights – Sellers may want project back if buyer’s development stalls; buyer reluctant to operate with limited rights /
timeline
• Indemnity Considerations
• Fluctuating purchase price requires thinking about limitations at different points in time
• Setoff against future payments
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Sale of a “Development Complete” Project(Developer to Utility or Long-Term Owner)
• Deal Structure
• May stagger signing and closing or happen simultaneously; Developer may have
involvement post-Closing
• Typically utilize a Membership Interest Purchase Agreement to avoid third party
consent issues
• “Development Completion” – Conditions Precedent
• Real estate – will crossing agreements and other late-stage real estate work be
completed? Will a title policy be obtained?
• Permits – consider those that won’t be completed by Closing
• Timing of long-lead items such as interconnection agreements
• Buyer’s involvement and level of discretion is a key point
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Sale of a “Development Complete” Project(Developer to Utility or Long-Term Owner)
• Purchase Price & Milestones
• Purchase Price is typically broken up into milestone payments
• Payment at signing may vary significantly
• Consider whether payments need to cover major project costs and security postings
• Termination & Buy-back Rights
• Key termination triggers include an outside date, failure to obtain regulatory approvals,
breach, may include change in law
• Schedule Updates
• Schedules must be updated to address ongoing development activities; level of Buyer
approval is a key point
• Phased Projects
• Consider the impact of subsequent phases and how to address shared assets
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Build Transfers
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• Significant length of time and activity between sign and close
• Contract structure – service agreement, purchase and sale agreement, hybrid
• Commission Approvals and CPs to NTP
• Payment Structure
o Purchase price paid in progress payments or payment at completion
o Any up front payments for period leading up to NTP
Build Transfers
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• Warranty, Seller’s contracting strategy and O&M Services
• Design, layout and scope of work
• Build-out restrictions and reservation of rights
Sale of an Operating Project
• Deal Structure
• Sale of Equity Interests (100% or <100% of equity interests?)
• Tax equity investors?
• Considerations – (A) minority / majority interests, (B) who will be the manager of the SPV, (C) will Seller be the O&M contractor?
• Payment Structure
• Deposit upon execution (sometimes) with forfeiture for Buyer’s failure to perform
• Payment (in full) upon closing
• Typical Closing Conditions Precedent
• Replacement of credit support
• Sandbagging / materiality scrapes
• CFIUS (Committee on Foreign Investment in the United States) approval needed?
• Estoppels / consents (landowners, etc.)
• Common Deal Points
• Sufficiency clauses
• Survival period
• Updates to Disclosure Schedules between signing & close
• Indemnification Caps (% of Purchase Price / Total Purchase Price / Baskets (tipping v. pure basket))
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Current Trends16