Gregory,
I hope this finds you well. I am writing in connection with the proposed initial public offering of Calloway-Briggs Renewables Inc. ("CBR") (C&H Matter No. 1015-00001) to align on the scope, timing, and procedures for the initial comfort letter under SAS 72 / AU-C 920.
As you know, CBR's confidential draft registration statement on Form S-1 was initially submitted to the SEC on April 11, 2022 (EDGAR Accession No. 0001948372-22-000001), and Amendment No. 1 was filed on May 20, 2022 in response to the SEC's first-round comment letter (18 comments received May 6, 2022). With the amendment now on file, we would like to use this email to confirm the parties' understanding on several comfort letter topics so that we can work toward a timely delivery. I have organized the discussion below by subject.
**1. Scope of the Initial Comfort Letter**
We understand that the initial comfort letter will cover: (a) the audited consolidated financial statements of CBR for fiscal years 2019, 2020, and 2021 (fiscal year ended December 31, 2021); and (b) the unaudited interim financial data for Q1 2022 (quarter ended March 31, 2022). The comfort letter should be addressed to Hargrove Keating & Co., as representative of the several underwriters, together with Linden Pratt Securities LLC, Graymont Brothers Inc., Barfield Stuart & Co., and Crane Whitley Capital LLC.
As a reference point, the draft comfort letter request previously circulated by Hargrove Keating on behalf of the underwriters to Ashford & Pemberton has been reviewed by both Calderwood & Harkness (on behalf of CBR) and Prescott, Danforth & Yee (on behalf of the underwriters), and comments have been provided. We believe the request letter is substantially in agreed form, but we flag the following expected procedures for confirmation:
- Independence confirmation; - Tick-and-tie of all financial data appearing in the registration statement and prospectus to the audited financial statements and underlying accounting records; - Specific agreed-upon procedures on selected financial data, the capitalization table, the dilution analysis, and selected statistical and operating data — including the operating capacity figures disclosed in the S-1 (3.8 GW operating, 1.4 GW under construction, 6.2 GW development pipeline); and - Verification of the financial highlights referenced throughout the registration statement, including FY 2021 revenue ($487.3M), Adjusted EBITDA ($218.6M), net income ($41.7M), total assets ($3.94B), and total debt ($1.71B), as well as the corresponding FY 2019 and FY 2020 figures and the Q1 2022 interim figures ($131.4M revenue, $59.8M Adjusted EBITDA, $8.3M net income).
Please let us know if Ashford & Pemberton has any concerns with the scope as outlined above or if there are additional items the engagement team would expect to include.
**2. Non-GAAP Measures**
You will have noted that the SEC's first-round comment letter raised questions regarding the Adjusted EBITDA reconciliation and the presentation of non-GAAP measures more broadly. The response filed with Amendment No. 1 enhanced the reconciliation disclosures in several respects. We would appreciate it if Ashford & Pemberton could confirm whether the enhanced non-GAAP reconciliation as set forth in Amendment No. 1 is sufficient for purposes of the comfort letter procedures, or whether any additional reconciliation items need to be addressed before the comfort letter can be finalized.
We also note that we anticipate a second-round comment letter from the SEC in the near term, which may include further follow-up on the non-GAAP reconciliation. We will of course keep you apprised as soon as any additional comments are received.
**3. HLBV Methodology**
As you are aware, the SEC's first-round comments specifically addressed the Hypothetical-Liquidation-at-Book-Value (HLBV) methodology used for accounting for the Solaris West tax-equity partnership with Veltara Basin Financial LLC ($280M invested). Our tax specialist, Leonard Cross, and the team at Kessler McBride & Associates LLP (Alan Kessler and Linda McBride) have been coordinating with Ashford & Pemberton on the HLBV-related disclosures.
We wanted to ask whether Ashford & Pemberton currently anticipates any exceptions or qualifications in the comfort letter related to the HLBV accounting or the tax-equity partnership structures generally. To the extent any open items remain on the audit side with respect to these structures, it would be helpful to understand them now so that we can address them in advance of the comfort letter delivery.
**4. Circle-Up Procedures and Timing**
We confirm our understanding that three circle-ups of the comfort letter are planned:
1. **Initial comfort letter** — targeted delivery on or about June 8, 2022 (consistent with the date reflected in the current document inventory); 2. **Bring-down comfort letter (pricing)** — to be delivered on the pricing date; and 3. **Bring-down comfort letter (closing)** — to be delivered on the closing date.
Specific dates for the bring-down letters will be confirmed once the offering timeline is finalized and market conditions are assessed. In the meantime, we would appreciate Ashford & Pemberton's confirmation that the engagement team will be available to turn around the bring-down letters on an expedited basis — typically within two to three business days from the applicable cutoff date — once pricing is determined. We understand that Hargrove Keating (Oliver and Sonia) and Prescott, Danforth & Yee (Margaret) will coordinate directly with Ashford & Pemberton on the final form of the bring-down request letters at the appropriate time.
**5. Change-Period Coverage**
The initial comfort letter should cover the "change period" — that is, the period from the date of the most recent audited balance sheet (December 31, 2021) through a date not more than five business days prior to the date of the comfort letter. Assuming a June 8 delivery, we would expect the cutoff date to be approximately June 1, 2022.
Negative assurance should be provided with respect to any decrease in revenue, net income, or total assets, or any increase in total debt, during the change period as compared to the corresponding prior-year period, subject to customary limitations. We would also request that the change-period procedures cover the unaudited Q1 2022 interim period and any subsequent interim period data available through the cutoff date.
Marcus and Priya — we wanted to confirm that CBR management will provide Ashford & Pemberton with the necessary management representation letters and any supplemental financial data needed for the change-period procedures on a timeline consistent with the June 8 target. Please let us know if there are any concerns on the company side regarding data availability.
**6. Coordination on SEC Comment Responses**
As noted above, the response to the SEC's first-round comments was filed on May 20, 2022 with Amendment No. 1 (EDGAR Accession No. 0001948372-22-000002), and we anticipate a second-round comment letter in the near term. We would ask that Ashford & Pemberton flag any comfort letter scope issues that may arise from the SEC's comments, particularly with respect to revenue recognition, segment reporting, or PPA revenue detail. We also confirm that Ashford & Pemberton should review Amendment No. 1 — and any subsequent amendments — for purposes of the comfort letter tick-and-tie procedures.
**7. Draft Comfort Letter and Proposed Call**
With the foregoing in mind, we have the following requests on timing and next steps:
- We would appreciate it if you or Irene could circulate a draft of the initial comfort letter for our review no later than **Friday, June 3, 2022** (approximately five business days before the targeted June 8 delivery). Calderwood & Harkness will prepare a review memorandum analyzing the scope, procedures, and any exceptions noted in the draft, and we will coordinate our comments with Prescott, Danforth & Yee. - We would like to propose a call among Ashford & Pemberton, Calderwood & Harkness, and Prescott, Danforth & Yee during the **week of May 30** to discuss any open items and ensure we are aligned before the draft is circulated. Could you please let us know your availability? My direct line is (212) 558-7243.
**8. Closing**
Thank you, as always, for the excellent coordination throughout this process. We recognize that timing is important given the overall IPO timeline, though we appreciate that market conditions will ultimately drive the final schedule. We look forward to continuing to work together toward a smooth execution.
Please do not hesitate to reach out with any questions or if it would be helpful to discuss any of the above in advance of the proposed call.
Best regards,
Natasha Forbes Associate, Capital Markets Calderwood & Harkness LLP 599 Lexington Avenue New York, NY 10022 T: (212) 558-7243 E: nforbes@calderwoodharkness.com
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