Alan,
I hope this finds you well. I wanted to lay out in one place the key tax workstreams we need to coordinate on for the proposed IPO of Calloway-Briggs Renewables Inc. ("CBR") so that we can align on deliverables and timing. As you know, we are moving quickly — the DRS-1 is targeted for confidential submission to the SEC on Monday, April 11, and the S-1 drafting is well advanced.
By way of brief background for anyone on this chain who may not have the full picture: CBR is a Delaware-incorporated, Austin-headquartered developer and operator of utility-scale solar, wind, and battery-storage projects. The proposed offering is approximately $600,000,000 of common stock on the NYSE under the proposed ticker CBRI. Calderwood & Harkness represents CBR as issuer's counsel, with Jennifer Kwon serving as the responsible partner and Brendan Walsh as lead associate. Kessler McBride serves as CBR's external tax advisor. The engagement commenced on March 10, and the organizational meeting ran the week of March 14–18 in Austin. We need to finalize the tax-related analysis and S-1 disclosures promptly, and I appreciate your team's attention to the items below.
**1. Up-C vs. C-Corp Structure Analysis**
I am preparing a tax structure memorandum analyzing the choice between a traditional C-corp IPO and an Up-C structure. As you know, CBR is currently organized as a Delaware C-corporation (EIN 83-4027615), with a subsidiary structure flowing through CBR Holdings LLC (a Delaware LLC) and Calloway-Briggs Operating Company LLC (a Texas LLC), with project-level SPVs below. Pre-IPO ownership is approximately 62% held by Pinnacle Vista Capital Partners III, LP (Series III Fund, 2016 vintage; initial $385M investment in 2017, $120M follow-on in 2019), approximately 24% held by co-founders Garrett Calloway and Elaine Briggs and management, and approximately 14% held by earlier-stage investors and employees.
My preliminary view is that a C-corp structure is the appropriate path given CBR's existing corporate form, Pinnacle Vista's exit horizon, and the complexity that a tax receivable agreement ("TRA") would add. I would appreciate Kessler McBride's independent analysis and concurrence on this point, or any views to the contrary. Specifically, I would ask you and Linda to assess whether a TRA would be warranted under the circumstances or whether you agree it is unnecessary in the context of the C-corp structure. If you could provide your written analysis by mid-April — say, no later than Friday, April 15 — that would allow us to incorporate your conclusions into both the S-1 disclosures and my internal memorandum before we circulate Amendment No. 1.
**2. Tax-Equity Partnership-Flip Compliance (Solaris West)**
The most significant tax-equity arrangement in CBR's portfolio is the Solaris West tax-equity partnership with Veltara Basin Financial LLC ($280,000,000 invested; partnership flip expected in 2028). Solaris West Solar LLC is the project SPV — a Texas LLC, 100% owned by CB Operating — operating a 450 MW solar PV facility in Pecos County, Texas, with COD in Q3 2020.
There are several key questions I would like Kessler McBride to address:
- Whether the IPO (i.e., the change in ultimate ownership at the parent level) constitutes or could trigger a "recapture event" under the tax-equity partnership agreement or under applicable ITC provisions. - Compliance with the Rev. Proc. 2007-65 safe harbor for the partnership-flip structure in light of the IPO. - Whether the IPO affects the expected flip timing in 2028. - Whether any consent or notice is required from Veltara Basin Financial. We are aware that Karen Fujimoto (Partner, Tax Equity Investments at Veltara Basin) is the principal contact on their side. Calderwood & Harkness is separately analyzing the consent and notice provisions of the partnership agreement from a contractual standpoint, but I would value Kessler McBride's perspective on the tax dimensions — specifically, whether a change-of-control at the indirect parent level implicates any tax-related consent or notification obligations under the structure.
Please confirm your analysis of ITC recapture risk in the context of the IPO and flag any issues that should be surfaced in the S-1 risk factors. This is an area where I expect the SEC staff will focus, so the disclosures need to be airtight.
**3. ITC/PTC Eligibility Across the Portfolio**
CBR's operating portfolio is 3.8 GW across 22 projects in Texas, New Mexico, Arizona, California, and Oklahoma, with 1.4 GW currently under construction — Mesquite Wind (420 MW, Oldham County, TX, expected COD Q3 2022) and Cimarron Solar (350 MW, Doña Ana County, NM, expected COD Q1 2023) — and a 6.2 GW development pipeline. I would like Kessler McBride to review ITC and PTC eligibility across the portfolio, including safe-harbor analysis and begin-construction / continuity-of-construction standards, with particular attention to the projects under construction and the more advanced development-stage projects (Silverleaf Wind and Copper Basin Solar + Storage). The S-1 risk factors will also need to address potential legislative changes affecting ITC/PTC availability, and your input on the appropriate scope and language for those disclosures would be helpful.
**4. HLBV Methodology**
The Hypothetical-Liquidation-at-Book-Value ("HLBV") accounting methodology used for the Solaris West tax-equity partnership was flagged during our organizational meeting as a potential area of SEC comment. I am coordinating with Ashford & Pemberton LLP — Gregory Sondheim is the lead engagement partner and Irene Valdez is the audit manager — on the HLBV disclosures in the S-1. I would ask Kessler McBride to provide an independent review of the HLBV calculations and methodology to ensure the disclosures are defensible in the event of SEC staff scrutiny. As you may be aware, the comfort letter process will involve three circle-ups (initial, bring-down, and pricing), and consistency between your analysis and Ashford & Pemberton's treatment will be important throughout.
**5. Section 409A Valuation / Cheap-Stock**
I am separately handling the Section 409A valuation review and cheap-stock analysis for equity grants issued from 2019 through Q1 2022, so I do not need Kessler McBride to take the lead on this workstream. That said, if you or Linda have any views on the common stock valuation history that should be coordinated with the broader tax analysis, please flag them. For reference, pre-IPO shares outstanding are 100,000,000 (fully diluted, post-reclassification), and the assumed midpoint IPO price of $22.00 per share implies a pre-money equity valuation of approximately $2.2 billion.
**Logistics and Next Steps**
The tax due diligence request list (Document 11 in the matter index), which was prepared with my input, has been sent to CBR management — Sandra Haverford (General Counsel), Marcus Yoon (CFO), and Priya Anand (SVP Finance & Treasurer). If there are additional documents you need from the data room beyond what was included in that request list, please let me know and we will get them queued up.
I would like to propose a call early the week of April 11 to discuss preliminary findings and coordinate on the deliverables outlined above. Given that the DRS-1 is being filed on April 11, any tax disclosure issues that cannot be surfaced by then will need to be addressed in Amendment No. 1. For any questions about the overall deal structure or timeline, please direct those to Jennifer Kwon or Brendan Walsh.
I will circulate drafts of my C-corp vs. Up-C memorandum and the tax-equity partnership-flip memorandum once they are in more advanced form for your review and comment.
Alan, Linda — thank you both for your collaboration on this. Given the complexity of CBR's tax-equity structures and the scale of the portfolio, it is important that we get the tax analysis right, and I appreciate the attention your team is giving to these issues.
Best regards,
Leonard Cross Partner — Tax Calderwood & Harkness LLP 599 Lexington Avenue New York, NY 10022 T: (212) 555-4100 lcross@calderwoodharkness.com
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