Locke Lord lawyers structure and facilitate each of the U.S. federal production tax credit and investment tax credit, and similar state tax credits using "stand alone" structures, "sale-leaseback" structures, "flip partnership" structures, "inverted pass-through leases," "sandwich lease structures," power purchase agreements, operating leases and combinations thereof.
We profile market participants in order to bring together an optimal transaction team to close each transaction. For example, we profile more than 40 tax credit investors to determine geographical investment areas, underwriting criteria and appetite for nature of renewable energy projects. Additionally, we have profiled all 50 states with respect to available renewable energy tax credits and other state subsidies.
Moreover, we are able to provide tax advice with respect to transactions involving highly complex "capital stack" structures that balance minimizing the cost of capital to borrowers, developers and lessees and maximizing the internal rate of return to investors and lenders. We assist in identifying all sources and uses of financing, including construction and permanent financing, taxable and tax-exempt bonds, tax increment financing, grants, venture capital and other federal, state and local subsidies.
Often a facility that generates production tax credits and investment tax credits may also qualify for federal and state "new markets tax credits," "historic tax credits," and "low-income housing tax credits." Our lawyers advise with respect to the most efficient and effective use of these tax credits with renewable energy tax credits.
We advise and provide all federal and state tax opinions with respect to the production tax credits and investment tax credits including (a) whether the investor is entitled to the particular tax credit; (b) whether certain parties are considered "owners" for tax purposes; (c) whether a particular lease is a "true lease" for tax purposes; (d) whether a service contract is a "property lease" for tax purposes; (e) whether an entity is a "partnership" for tax purposes; (f) whether transactions have "economic substance;" and (g) other customary tax opinions.
With respect to our representation of any transaction participant, we offer all legal services including, as applicable, those relating to:
- Evaluating eligibility for production tax credits, investment tax credits and similar state tax credits
- Assisting in identifying investors and other transaction participants based on the type and location of the facility
- Assisting in creation of underwriting criteria
- Evaluating economic and non-economic benefits
- Assessing risks (such as construction, operating deficits, payment, environmental and recapture guarantees and indemnifications)
- Assisting in structuring to maximize internal rate of return and reduce payment default and recapture risk
- Advising clients with respect to their business, legal and federal and state tax and regulatory issues
- Drafting transaction documents
- Evaluating and negotiating term sheets to identify potential business and economic issues
- Negotiating and closing all transactional documents with respect to real estate financing and business operation loans, as well as subsequent syndication transaction documents
- Advising and assisting clients with respect to title, environmental, zoning and land use issues
- Negotiating "exit" strategy to minimize adverse tax consequences and risk of investor/borrower with respect to failure to "put" their interests
- Negotiating terms of power purchase agreements
- Negotiating amount, terms and timing of developer fee
- Assisting tax-exempt organizations with respect to special issues (such as consistency with charitable purpose, private inurement, parameters for any joint venture to avoid revocation of tax-exempt status, monetizing charitable donations as source of leverage and guarantee issues)
- Providing applicable enforceability, tax and other opinions
- Assisting transaction participants with compliance reviews
- Counseling in the event or threatened event of recapture, default, foreclosure and refinancing; identifying and negotiating specific guarantees and indemnifications needed
- Negotiating secondary market transactions
- Providing updates regarding change in law or other guidance