CALDERWOOD & HARKNESS LLP 599 Lexington Avenue New York, New York 10022
PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
DUE DILIGENCE MEMORANDUM — MATERIAL CONTRACTS
C&H Matter No. 1015-00001 April 25, 2022
TO: Jennifer Kwon, Responsible Partner, Capital Markets
FROM: Brendan Walsh, Lead Associate, Capital Markets Natasha Forbes, Working Associate, Capital Markets
RE: Calloway-Briggs Renewables Inc. — Proposed Initial Public Offering — Due Diligence Review of Material Contracts
PURPOSE: This memorandum summarizes the findings of our due diligence review of Calloway-Briggs Renewables Inc.'s ("CBR" or the "Company") material commercial contracts across the operating portfolio (3.8 GW across 22 projects in Texas, New Mexico, Arizona, California, and Oklahoma), projects under construction (Mesquite Wind and Cimarron Solar, 1.4 GW combined), and the development pipeline. This memorandum identifies provisions with IPO-related implications — including change-of-control triggers, assignment restrictions, and consent and notice requirements — and flags items requiring disclosure in the S-1 registration statement (the "Registration Statement") to be filed with the Securities and Exchange Commission (the "SEC") in connection with the Company's proposed initial public offering (the "IPO").
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I. EXECUTIVE SUMMARY
Calloway-Briggs Renewables Inc. and its subsidiaries, principally through Calloway-Briggs Operating Company LLC ("CB Operating") and a network of project-level special purpose vehicles ("SPVs"), are party to a complex and interconnected web of commercial contracts that underpin the Company's revenue generation, project construction, ongoing operations and maintenance, and grid interconnection across its renewable energy portfolio. These contracts form the commercial backbone of CBR's business and are central to the Company's value proposition to prospective public investors.
In connection with the proposed IPO, we have conducted a comprehensive review of the Company's material commercial contracts organized across the following principal categories:
(a) Power Purchase Agreements ("PPAs");
(b) Engineering, Procurement & Construction ("EPC") Contracts;
(c) Operations & Maintenance ("O&M") Agreements;
(d) Interconnection Agreements;
(e) Equipment Supply Agreements; and
(f) Land Leases and Surface-Use Agreements (which are addressed in the separate Due Diligence Memorandum — Real Property and Land Rights (Doc 22) and are accordingly not treated in detail herein).
In total, we reviewed approximately 85 material contracts across all categories and all projects in the operating portfolio, the two projects under construction, and, at a summary level, certain binding arrangements in the development pipeline.
Key Findings. Based on our review, we have identified the following key findings:
Revenue Stability. CBR's revenue base is substantially contracted through long-term PPAs across the operating portfolio. The weighted average remaining term of PPAs across the 22 operating projects is approximately 14 years, providing significant near-term and medium-term revenue visibility. Substantially all of the 3.8 GW of operating capacity is subject to long-term offtake agreements with creditworthy counterparties.
Change-of-Control Provisions. Change-of-control provisions exist in a significant number of PPAs and, to a lesser extent, EPC contracts. The majority of these provisions can be satisfied through the delivery of written notice to the applicable counterparty rather than through obtaining prior written consent. However, certain counterparties — most notably the PPA counterparties for Painted Rock Solar and Mesquite Wind — have provisions that either require prior written consent upon a change of control or contain ambiguous language that warrants proactive engagement with the counterparty to obtain written confirmation that the IPO does not constitute a triggering event.
Assignment Restrictions. Assignment restrictions in interconnection agreements are generally tied to regulatory approval requirements (the Federal Energy Regulatory Commission ("FERC") and applicable state public utility commissions ("PUCs")) rather than counterparty consent. Assignment restrictions in PPAs and EPC contracts are standard market provisions with customary carve-outs for affiliate transfers and lender collateral assignments.
IPO Impact. Based on our analysis, no identified contract would be materially impaired by the IPO, subject to the delivery of required notices and, in the limited cases of Painted Rock Solar and Mesquite Wind, obtaining written confirmations or consents from the applicable PPA counterparties. The IPO structure — in which Pinnacle Vista Capital Partners ("Pinnacle Vista") retains a significant ownership stake post-IPO and the project-level SPVs remain wholly owned indirect subsidiaries of CBR — substantially mitigates change-of-control risk across the contract portfolio.
S-1 Disclosure. Several material contracts must be filed as exhibits to the Registration Statement pursuant to Item 601(b)(10) of Regulation S-K, and the Company's contracted revenue base, counterparty relationships, and change-of-control provisions will require disclosure in the Business, Risk Factors, and MD&A sections of the prospectus.
Cross-References. This memorandum should be read in conjunction with the following related due diligence memoranda:
• Due Diligence Memorandum — Debt and Financing Arrangements (Doc 27), which covers the corporate revolving credit facility, Term Loan B credit agreement, project-level construction-to-term facilities with Prairie Commercial Bank, N.A., and tax-equity structures with Veltara Basin Financial LLC;
• Due Diligence Memorandum — Real Property and Land Rights (Doc 22), which covers land leases, surface-use agreements, easements, rights-of-way, and title matters; and
• Due Diligence Memorandum — Regulatory and Permitting (Doc 21), which covers FERC authorization, state PUC filings, environmental permits, and compliance obligations.
II. SCOPE AND METHODOLOGY
Documents Reviewed. Our review encompassed the following document sources:
(a) CBR management's responses to the Due Diligence Request List — Material Contracts (Doc 16), which was initially circulated to the Company on March 14, 2022, and supplemented with follow-up requests on March 28, 2022, and April 8, 2022;
(b) Data room materials organized by project in Folders 4.1 through 4.22 (operating projects) and Folders 5.1 and 5.2 (construction projects) of the electronic data room hosted on Crestline Solutions;
(c) Executed contract copies and amendments provided directly by Sandra Haverford, General Counsel & Corporate Secretary of CBR, and her legal team, including materials uploaded in response to specific follow-up requests; and
(d) Summary memoranda and management presentations provided by CBR's business teams concerning the development pipeline and associated contracts.
Review Period. The document review was conducted during the period from March 21, 2022, through April 22, 2022. This memorandum reflects materials received and reviewed through the date of this memorandum. Any materials received after April 22, 2022, will be addressed in supplemental memoranda as appropriate.
CBR Personnel. We received substantial assistance from the following CBR management personnel during the review process, including through telephonic interviews, written responses to questions, and facilitation of data room access:
• Sandra Haverford, General Counsel & Corporate Secretary, who served as primary legal contact and coordinated production of contract materials;
• Tomás Quintero, Senior Vice President, Project Development, who provided context regarding development-stage contracts, interconnection queue positions, and counterparty relationships;
• Priya Anand, Senior Vice President, Finance & Treasurer, who provided information concerning financial terms, revenue projections, and the interplay between commercial contracts and project-finance arrangements; and
• Dale Renfroe, Chief Operating Officer, who provided information regarding O&M arrangements, operational performance, and EPC warranty status.
Analytical Methodology. Each material contract was reviewed and analyzed against the following standard criteria:
(i) Term and renewal provisions, including initial term, extension options, and conditions to renewal;
(ii) Change-of-control and assignment provisions, including the definition of "change of control" (or equivalent terms), triggering events, required remedies (notice, consent, or termination right), and the presence or absence of IPO-specific carve-outs;
(iii) Termination rights, including termination for cause, termination for convenience, and termination upon the occurrence of specified events (including change-of-control termination rights);
(iv) Material adverse effect or material adverse change triggers, including definitions and consequences;
(v) Force majeure provisions, including scope of qualifying events, notice requirements, and performance-excuse mechanisms;
(vi) Insurance and indemnification obligations, including minimum coverage requirements, additional-insured requirements, and allocation of liability;
(vii) Limitation of liability provisions, including aggregate caps, exclusions of consequential or indirect damages, and carve-outs;
(viii) Governing law and dispute resolution provisions, including choice of law, arbitration clauses, venue provisions, and jury-trial waivers; and
(ix) Disclosure requirements under Regulation S-K Item 601(b)(10), including whether each contract constitutes a material contract upon which the Company's business is substantially dependent or that creates material obligations or entitlements that must be disclosed to prospective investors.
Limitations. The following limitations apply to this review:
• Development-stage pipeline contracts (representing approximately 6.2 GW of potential capacity across multiple projects) were reviewed at a summary level only. Binding PPAs and interconnection agreements for development-stage projects were flagged where relevant, but a comprehensive analysis of all development-stage contract terms was not undertaken given the preliminary nature of many of these arrangements and the expectation that additional development-stage contracts will be executed or materially modified prior to the IPO.
• This memorandum does not address debt and financing arrangements, tax-equity partnership agreements, or real property and land rights, each of which is addressed in the separate due diligence memoranda referenced above.
• Our review is based on the documents provided to us and the representations of CBR management. We have not independently verified the completeness of the document production, although Sandra Haverford has represented to us that all material commercial contracts have been made available for review.
III. POWER PURCHASE AGREEMENTS (PPAs)
A. Overview of PPA Portfolio
CBR's revenue is primarily derived from long-term PPAs executed at the project-SPV level. Each project-level SPV enters into one or more PPAs with offtakers who agree to purchase the electric energy (and, in some cases, associated renewable energy credits ("RECs") and capacity attributes) generated by the applicable project. The PPAs establish the pricing, delivery, and performance terms that form the foundation of each project's revenue stream and, in turn, the basis for project-level financing.
The weighted average remaining PPA term across the operating portfolio is approximately 14 years, providing meaningful long-term revenue visibility. PPA terms range from approximately 10 years remaining (Red Mesa Wind, which has the earliest commercial operation date ("COD") among the reviewed projects) to approximately 23 years remaining (Cimarron Solar, which has a 25-year term commencing from its expected COD in Q1 2023).
The PPA portfolio reflects a mix of pricing structures, including:
• Fixed-price PPAs with predetermined energy prices for the duration of the contract term;
• Escalating-price PPAs with a fixed initial price subject to annual escalation (typically at a stated percentage or tied to a consumer price index);
• Indexed-price PPAs with pricing linked to a published benchmark (such as a regional power-price index), often subject to contractual floor and ceiling mechanisms; and
• Tolling agreements (in the case of battery energy storage projects) under which the counterparty pays a capacity payment for the right to dispatch the storage facility and retains the energy-arbitrage revenues, or shares such revenues pursuant to a contractual allocation mechanism.
PPA counterparties across the portfolio include regulated investor-owned utilities, municipal utilities and public power entities, commercial and industrial ("C&I") offtakers, and electric cooperatives. The diversity of the counterparty base across both geography and credit profile represents a meaningful risk-mitigation factor that should be highlighted as a competitive strength in the Registration Statement.
In aggregate, the total contracted capacity under PPAs covers substantially all of the 3.8 GW of operating capacity. Merchant exposure is limited to certain ancillary revenue streams (e.g., ERCOT real-time market participation for Brazos Storage during periods when the tolling counterparty does not dispatch the facility) and to RECs and other environmental attributes that are not included in certain PPA structures.
B. Project-by-Project PPA Summary
Set forth below is a summary of our review of PPAs for each of CBR's major operating and under-construction projects, with particular focus on change-of-control provisions, assignment restrictions, and IPO-related implications.
1. Solaris West (Solaris West Solar LLC — 450 MW Solar PV, Pecos County, Texas; COD Q3 2020). Solaris West Solar LLC ("Solaris West SPV"), a wholly owned indirect subsidiary of CBR through CB Operating and CBR Holdings LLC ("CBR Holdings"), is party to a PPA with Lone Star Power & Light Company ("Lone Star P&L"), a regulated investor-owned utility operating in the ERCOT market, dated June 12, 2018, as amended by Amendment No. 1 dated February 3, 2020 (collectively, the "Solaris West PPA"). The Solaris West PPA has an initial term of 20 years commencing from the COD (achieved in Q3 2020) and provides for the sale and purchase of 100% of the energy output from the 450 MW facility, together with all associated RECs and environmental attributes.
Pricing. The Solaris West PPA provides for a fixed energy price per MWh subject to an annual escalation of 1.5% per year, commencing on the first anniversary of the COD. The initial contract price is competitively positioned relative to market comparables as of the execution date. Amendment No. 1 adjusted certain delivery-point specifications and metering protocols but did not modify the pricing terms.
Change-of-Control Provision. Section 14.3 of the Solaris West PPA contains a change-of-control provision that requires the delivery of 30-day prior written notice to Lone Star P&L upon the occurrence of a "Change of Control" of the project company or its "Parent Entity." "Change of Control" is defined as the acquisition by any person or group of persons acting in concert of more than 50% of the voting interests of Solaris West SPV or the Parent Entity (defined as CBR Holdings LLC and any entity that directly or indirectly controls CBR Holdings LLC). The provision does not require the consent of Lone Star P&L unless the acquirer fails to meet specified creditworthiness thresholds (investment-grade credit rating from at least one nationally recognized statistical rating organization, or the posting of a letter of credit in a specified amount).
Assignment. Section 15.1 of the Solaris West PPA provides that the PPA is not assignable without the prior written consent of Lone Star P&L, subject to two standard exceptions: (a) assignment to an affiliate of Solaris West SPV, provided that the assignee assumes all obligations under the PPA and the assignor remains secondarily liable, and (b) collateral assignment to a project-finance lender for security purposes.
IPO Analysis. The IPO does not trigger the change-of-control provision as defined in the Solaris West PPA. The IPO will result in the introduction of public shareholders at the CBR Inc. level, but no single person or group will acquire more than 50% of the voting interests of CBR. Pinnacle Vista is expected to retain approximately 49% of CBR's outstanding common stock following the IPO (or approximately 47% if the underwriters exercise their overallotment option in full). Pinnacle Vista will continue to hold its interest through the same intermediate holding entities, and the ownership of Solaris West SPV will not change (it will remain a wholly owned indirect subsidiary of CBR). Accordingly, we do not believe the Solaris West PPA change-of-control provision is triggered by the IPO. However, as a precautionary measure, we recommend delivering a notice to Lone Star P&L informing it of the IPO and the resulting change in CBR's ownership structure. This approach is consistent with the Company's general practice of maintaining transparent counterparty relationships.
2. Red Mesa Wind (Red Mesa Wind Energy LLC — 380 MW Onshore Wind, Custer County, Oklahoma; COD Q1 2019). Red Mesa Wind Energy LLC ("Red Mesa SPV"), a wholly owned indirect subsidiary of CBR, is party to a PPA with Great Plains Electric Cooperative ("GPEC"), dated September 28, 2016, as amended by Amendment No. 1 dated November 14, 2018 (collectively, the "Red Mesa PPA"). The Red Mesa PPA has an initial term of 22 years commencing from the COD (achieved in Q1 2019) and provides for the sale and purchase of the full energy output of the 380 MW facility.
Pricing. The Red Mesa PPA provides for a fixed energy price per MWh subject to biennial escalation at a stated percentage. The biennial escalation mechanism was implemented to align with GPEC's rate-adjustment cycle and is a customary feature in PPAs with cooperative offtakers in the SPP market.
Change-of-Control Provision. Section 12.4 of the Red Mesa PPA requires the prior written consent of GPEC for any "Change of Control," defined as the transfer of more than 50% of the equity interests in Red Mesa SPV or its "Parent" (defined as any entity that directly or indirectly holds more than 50% of the equity interests of Red Mesa SPV). Critically, Section 12.4(c) includes an express carve-out providing that "an initial public offering of the equity securities of the ultimate parent entity of [Red Mesa SPV] shall not constitute a Change of Control for purposes of this Section 12.4." This IPO carve-out is clear and unambiguous.
Assignment. Section 13.1 contains standard assignment restrictions with customary exceptions for affiliate transfers and lender collateral assignments.
IPO Analysis. The express IPO carve-out in Section 12.4(c) of the Red Mesa PPA definitively resolves any change-of-control concern. No consent from GPEC is required. As a matter of good practice and consistent with the Company's approach across the portfolio, we recommend delivering a courtesy notice to GPEC informing it of the IPO.
3. Painted Rock Solar (Painted Rock Solar LLC — 320 MW Solar PV, Maricopa County, Arizona; COD Q4 2020). Painted Rock Solar LLC ("Painted Rock SPV"), a wholly owned indirect subsidiary of CBR, is party to a PPA with Arizona Western Utilities, Inc. ("AWU"), dated March 5, 2019 (the "Painted Rock PPA"). The Painted Rock PPA has an initial term of 20 years commencing from the COD (achieved in Q4 2020) and provides for the sale and purchase of the full energy output of the 320 MW facility, together with associated RECs.
Pricing. The Painted Rock PPA provides for pricing indexed to a published regional benchmark, subject to a contractual floor price and ceiling price. This pricing structure provides the Company with a degree of market upside while protecting the project's debt-service coverage through the floor mechanism. The floor and ceiling parameters were negotiated in the context of the project-finance underwriting and reflect the requirements of the construction-to-term lender.
Change-of-Control Provision. Section 11.2 of the Painted Rock PPA contains a broadly defined change-of-control provision. "Change of Control" is defined as any transaction, or series of related transactions, that results in a change in the identity of the "Controlling Person" of Painted Rock SPV. "Controlling Person" is defined as any person that, directly or indirectly, (a) holds more than 50% of the equity interests of Painted Rock SPV, (b) has the power to direct or cause the direction of the management and policies of Painted Rock SPV, or (c) has the power to appoint a majority of the board of directors (or equivalent governing body) of Painted Rock SPV. Notably, the Painted Rock PPA does not contain an explicit IPO carve-out.
Upon the occurrence of a Change of Control, AWU has the right, exercisable within 90 days following receipt of written notice of the Change of Control, to either (x) consent to the Change of Control (such consent not to be unreasonably withheld, conditioned, or delayed) or (y) terminate the PPA upon 180 days' prior written notice.
Assignment. Section 12.1 requires AWU's prior written consent for any assignment, with the qualification that such consent shall not be unreasonably withheld.
IPO Analysis. This PPA has been flagged as requiring heightened attention. The IPO may not technically trigger the change-of-control provision because the "Controlling Person" of Painted Rock SPV is CBR Holdings LLC (which holds 100% of the equity interests of Painted Rock SPV through CB Operating), and the IPO does not change the identity of CBR Holdings LLC or CB Operating as the direct and indirect holders of Painted Rock SPV. CBR Holdings LLC will remain a wholly owned subsidiary of CBR Inc. both before and after the IPO, and the management and policies of Painted Rock SPV will continue to be directed by the same management team.
However, the broadly drafted "Controlling Person" definition — particularly the reference to indirect control and the power to direct management and policies — creates a potential argument that the introduction of public shareholders at the CBR Inc. level, coupled with the reduction of Pinnacle Vista's ownership stake below 50% (in the full-overallotment scenario), could constitute a change in the identity of the Controlling Person at the ultimate-parent level. While we believe the better reading of the provision is that it does not capture the IPO, the risk of a contrary interpretation by AWU is not negligible.
Recommendation. We recommend that the Company, through Sandra Haverford, proactively engage with AWU's legal team to obtain written confirmation that the IPO does not constitute a "Change of Control" under Section 11.2 of the Painted Rock PPA, or, alternatively, to obtain a waiver of AWU's termination right with respect to the IPO. This matter should be resolved prior to the commencement of the roadshow. In the interim, the existence of this provision and the associated risk should be disclosed in the Risk Factors section of the Registration Statement.
4. Pronghorn Wind (Pronghorn Wind LLC — 510 MW Onshore Wind, Nolan County, Texas; COD Q2 2021). Pronghorn Wind LLC ("Pronghorn SPV"), a wholly owned indirect subsidiary of CBR, is party to two separate PPAs for distinct tranches of the facility's output:
300 MW Tranche PPA. Pronghorn SPV is party to a PPA with Meridian Energy Holdings Corp. ("Meridian"), dated January 14, 2019, as amended by Amendment No. 1 dated August 6, 2020 (collectively, the "Pronghorn-Meridian PPA"), providing for the sale and purchase of 300 MW of the facility's output for a term of 15 years from COD. The Pronghorn-Meridian PPA provides for a fixed energy price per MWh with an annual escalation at a stated percentage.
210 MW Tranche PPA. Pronghorn SPV is party to a PPA with Central Texas Municipal Power Agency ("CTMPA"), dated April 22, 2019 (the "Pronghorn-CTMPA PPA"), providing for the sale and purchase of 210 MW of the facility's output for a term of 20 years from COD. The Pronghorn-CTMPA PPA provides for a fixed energy price per MWh with an annual escalation at a stated percentage.
Change-of-Control Provisions. The Pronghorn-Meridian PPA (300 MW tranche) contains a change-of-control provision requiring delivery of written notice to Meridian within 30 days following the occurrence of a Change of Control (defined as the acquisition by a third party of more than 50% of the equity interests of Pronghorn SPV). No consent is required. The Pronghorn-CTMPA PPA (210 MW tranche) requires the prior written consent of CTMPA for any direct transfer of Pronghorn SPV's equity, but does not contain a change-of-control provision triggered by changes in ownership at the parent-company level.
Assignment. Both PPAs contain standard assignment restrictions with customary exceptions for affiliate transfers and lender collateral assignments.
IPO Analysis. Neither PPA is triggered by the IPO. The IPO does not involve a transfer of Pronghorn SPV's equity interests, and the Pronghorn-Meridian PPA's change-of-control provision is focused on the project-company level. Notices will be delivered to both Meridian and CTMPA as a precautionary measure, consistent with the Company's approach across the portfolio.
5. Brazos Storage (Brazos Energy Storage LLC — 200 MW / 800 MWh Battery Energy Storage, Fort Bend County, Texas; COD Q4 2021). Brazos Energy Storage LLC ("Brazos SPV"), a wholly owned indirect subsidiary of CBR, generates revenue through a combination of a tolling agreement and energy-arbitrage arrangements through participation in the ERCOT wholesale electricity market.
Tolling Agreement. Brazos SPV is party to a Capacity Tolling Agreement with Gulf Coast Energy Trading LLC ("Gulf Coast"), dated July 9, 2020 (the "Brazos Tolling Agreement"), pursuant to which Gulf Coast pays a fixed monthly capacity payment for the right to dispatch the battery storage facility and retains the associated energy-arbitrage revenues, subject to a revenue-sharing mechanism that allocates a specified percentage of energy-arbitrage revenues above a stated threshold to Brazos SPV. The Brazos Tolling Agreement has an initial term of 10 years from COD.
Change-of-Control Provision. Section 9.2 of the Brazos Tolling Agreement contains a change-of-control termination right exercisable by Gulf Coast. Upon the occurrence of a "Change of Control," defined as the acquisition by any person or group of persons of more than 50% of the voting securities of the "Ultimate Parent Entity" of Brazos SPV, Gulf Coast has the right, exercisable upon 60 days' written notice following receipt of notice of the Change of Control, to terminate the Brazos Tolling Agreement.
IPO Analysis. The IPO introduces public shareholders to CBR but does not result in any single person or group of persons acquiring more than 50% of the voting securities of CBR. Following the IPO, Pinnacle Vista is expected to retain approximately 49% of CBR's outstanding common stock (or approximately 47% if the overallotment option is exercised in full), which falls below the 50% threshold. No other person or group will hold more than 50%. Accordingly, we believe the change-of-control provision is not triggered by the IPO.
However, the language warrants careful analysis, particularly with respect to whether Pinnacle Vista's retained stake, when combined with any governance arrangements (such as a stockholders' agreement or director-nomination rights) that give Pinnacle Vista the ability to influence CBR's management and policies, could be construed as constituting "control" for purposes of the provision. We have reviewed the draft stockholders' agreement and note that Pinnacle Vista's governance rights are structured as board-nomination rights rather than affirmative control rights. We believe this supports the conclusion that the provision is not triggered, but recommend confirming this conclusion with Gulf Coast prior to the IPO launch.
Assignment. Section 10.1 restricts assignment without Gulf Coast's prior written consent, including indirect transfers of Brazos SPV's equity. The lender collateral assignment exception covers Prairie Commercial Bank, N.A.
S-1 Disclosure. The Brazos Tolling Agreement should be described in the Business section of the Registration Statement as it represents the primary revenue contract for CBR's only battery energy storage asset, which is a strategically important component of the Company's portfolio and growth strategy. The tolling agreement should also be summarized as a material contract and filed as an exhibit.
6. Mesquite Wind (Mesquite Wind Holdings LLC — 420 MW Onshore Wind, Oldham County, Texas; Under Construction, Expected COD Q3 2022). Mesquite Wind Holdings LLC ("Mesquite SPV"), a wholly owned indirect subsidiary of CBR, is party to a PPA with Panhandle Rural Electric Cooperative, Inc. ("PREC"), dated November 3, 2020 (the "Mesquite Wind PPA"), providing for the sale and purchase of the full energy output of the 420 MW facility for a term of 20 years commencing from COD. The Mesquite Wind PPA provides for a fixed energy price per MWh with an annual escalation of 2.0% per year.
Change-of-Control Provision. Section 13.1 of the Mesquite Wind PPA requires the prior written consent of PREC for any "Change of Control" of the project company. "Change of Control" is broadly defined to include (a) the transfer of more than 50% of the equity interests of Mesquite SPV to any person other than an affiliate, or (b) any transaction or series of transactions that results in a change in the identity of the "Parent Entity" (defined as the entity that directly or indirectly controls Mesquite SPV) or a change in the person that controls the Parent Entity. The provision does not contain an IPO carve-out.
Upon the occurrence of an unconsented Change of Control, PREC has the right to terminate the Mesquite Wind PPA upon 120 days' written notice.
Assignment. Section 14.1 requires PREC's prior written consent for any assignment. A standard lender collateral-assignment exception is included for Prairie Commercial Bank, N.A., which provides the $165 million construction-to-term credit facility for the project.
IPO Analysis. This PPA has been flagged as requiring counterparty consent or, at minimum, written confirmation that the IPO does not constitute a Change of Control. The broadly drafted definition — particularly the reference to a "change in the person that controls the Parent Entity" — could be read to capture the IPO, particularly in the full-overallotment scenario where Pinnacle Vista's ownership of CBR falls below 50%. Even in the base-case scenario (Pinnacle Vista at approximately 49%), the fact that Pinnacle Vista's stake is below 50% means that, technically, a change in the person that "controls" CBR may be said to have occurred (because no single person controls CBR after the IPO, whereas Pinnacle Vista controlled CBR prior to the IPO).
Construction-Period Sensitivities. The Mesquite Wind PPA also contains termination rights tied to milestone delays during the construction period. The project is currently on track for its expected COD of Q3 2022, and no milestone-delay termination rights have been triggered. However, any disruption to the counterparty relationship — including a dispute regarding the change-of-control provision — during the construction period could have adverse consequences.
Recommendation. We strongly recommend seeking prior written consent from PREC, or written confirmation that the IPO does not constitute a Change of Control, prior to the commencement of the IPO roadshow. Sandra Haverford has indicated that CBR has a constructive working relationship with PREC management, and we anticipate that the request can be favorably resolved. The importance of this project — which represents the Company's largest near-term construction project and is expected to contribute meaningfully to revenue commencing in Q3 2022 — underscores the need to resolve this matter expeditiously.
7. Cimarron Solar (Cimarron Solar Development LLC — 350 MW Solar PV, Doña Ana County, New Mexico; Under Construction, Expected COD Q1 2023). Cimarron Solar Development LLC ("Cimarron SPV"), a wholly owned indirect subsidiary of CBR, is party to a PPA with El Camino Public Service Company ("ECPSC"), dated February 18, 2021 (the "Cimarron Solar PPA"), providing for the sale and purchase of the full energy output of the 350 MW facility, together with all associated RECs, for a term of 25 years commencing from COD.
Pricing. The Cimarron Solar PPA provides for a fixed energy price per MWh with an annual escalation at a stated percentage. The 25-year term is among the longest in CBR's portfolio and reflects ECPSC's regulatory requirement to demonstrate long-term resource adequacy in compliance with New Mexico's Energy Transition Act.
Change-of-Control Provision. Section 12.2 of the Cimarron Solar PPA contains a notice-only change-of-control requirement. "Change of Control" is defined as any transaction resulting in a change in the person that directly or indirectly controls the project company. Importantly, Section 12.2(b) provides that "an initial public offering of equity securities by the Ultimate Parent Entity, or any reorganization or restructuring in connection therewith, shall not constitute a Change of Control for purposes of this Agreement." This IPO carve-out is clear, express, and covers the contemplated transaction.
Assignment. Section 13.1 requires ECPSC's prior written consent for any assignment. The standard lender collateral-assignment exception covers Prairie Commercial Bank, N.A., which provides the $143 million construction-to-term credit facility for the project.
IPO Analysis. No consent is required. The IPO is expressly excluded from the definition of Change of Control. A courtesy notice will be delivered to ECPSC.
Use of Proceeds. Approximately $100 million of the primary IPO proceeds are expected to be allocated to fund the remaining construction costs of the Cimarron Solar project, as set forth in the Use of Proceeds section of the Registration Statement. This represents a significant use of IPO capital and reinforces the importance of the Cimarron Solar PPA as a material contract.
C. Summary Table — PPA Change-of-Control and Assignment Analysis
The following table summarizes the change-of-control and assignment analysis for each of CBR's major operating and under-construction projects:
With respect to the development-stage pipeline, we note the following: (a) Silverleaf Wind (600 MW, Irion County, TX) has a binding PPA under negotiation with a regulated utility counterparty, but execution has not yet occurred; (b) Copper Basin Solar + Storage (750 MW + 300 MW / 1,200 MWh, Riverside County, CA) has two PPAs under negotiation with separate counterparties (a municipal utility and a C&I offtaker), neither of which has been executed. Change-of-control provisions in these development-stage PPAs should be negotiated to include express IPO carve-outs, and we have communicated this recommendation to Tomás Quintero and Sandra Haverford.
D. PPA Disclosure Requirements for S-1
Based on our analysis, the following PPA-related disclosures will be required in the Registration Statement:
Business Section. The material PPAs should be described in the Business section, including a project-by-project summary of the principal terms (counterparty, term, capacity, and general pricing structure). Aggregate PPA data — including the weighted average remaining PPA term (approximately 14 years), the percentage of operating capacity under long-term contract (substantially all of 3.8 GW), and the mix of counterparty types — should be presented in the Prospectus Summary and in the Business section as evidence of the Company's contracted revenue base and as a competitive differentiator.
MD&A. Management's Discussion and Analysis of Financial Condition and Results of Operations should discuss revenue recognition under long-term PPAs, including the accounting treatment for fixed-price, escalating-price, and indexed-price structures. Any mark-to-market exposure for merchant or indexed contracts (including the Painted Rock Solar indexed PPA and the Brazos Storage energy-arbitrage arrangements) should be discussed.
Risk Factors. The following risk factor topics should be addressed with respect to PPAs:
• Counterparty credit risk, including the risk that one or more PPA counterparties may default on their payment obligations or seek to renegotiate contract terms;
• PPA renegotiation risk, including the risk that counterparties may seek to renegotiate pricing terms upon the occurrence of market changes or regulatory developments;
• Change-of-control consent risk, specifically referencing the existence of change-of-control provisions in certain material PPAs and the risk that a counterparty could assert that a future transaction triggers a change-of-control provision, potentially resulting in contract termination; and
• Merchant exposure risk for any portion of the portfolio not covered by long-term PPAs.
Exhibit Filings. Based on our analysis of Item 601(b)(10) of Regulation S-K, we recommend filing the following PPAs as exhibits to the Registration Statement:
• Solaris West PPA (representative large-scale solar PPA; largest operating solar project in the portfolio);
• Pronghorn Wind PPA — 300 MW tranche (Pronghorn-Meridian PPA) (representative wind PPA; Pronghorn Wind is the largest wind project in the portfolio);
• Brazos Storage Tolling Agreement (representative storage revenue contract; unique asset class in the portfolio); and
• Mesquite Wind PPA (material under-construction project with significant near-term revenue impact).
The remaining PPAs need not be filed as individual exhibits, provided they are adequately described in the narrative disclosure. We recommend requesting confidential treatment under Rule 406 of the Securities Act for commercially sensitive pricing terms contained in the filed PPAs, as discussed further in Section X below.
IV. ENGINEERING, PROCUREMENT & CONSTRUCTION (EPC) CONTRACTS
A. Overview. EPC contracts are in place for the Company's two projects currently under construction: Mesquite Wind (420 MW onshore wind, expected COD Q3 2022) and Cimarron Solar (350 MW solar PV, expected COD Q1 2023). EPC contracts for all 22 operating projects in the portfolio have been fully performed, with each project having achieved its COD and completed the applicable commissioning and acceptance-testing process. For operating projects, the only surviving EPC obligations are warranties, which are discussed in Section IV.D below.
CBR has historically engaged third-party EPC contractors on a fixed-price, date-certain, turnkey basis. Under this contracting model, the EPC contractor assumes responsibility for the full scope of engineering, procurement of all equipment and materials, construction, testing, and commissioning of the project for a lump-sum contract price, with guaranteed completion by a date-certain milestone. The turnkey model transfers construction risk — including cost overruns, schedule delays, and performance shortfalls — to the EPC contractor, subject to customary exceptions for force majeure, owner-caused delays, and changes in scope directed by the owner.
B. Mesquite Wind EPC Contract
Mesquite Wind Holdings LLC is party to an Engineering, Procurement & Construction Agreement with Ridgeline Infrastructure Partners LLC ("Ridgeline"), dated December 14, 2020, as amended by Change Order No. 1 dated June 30, 2021, and Change Order No. 2 dated October 15, 2021 (collectively, the "Mesquite Wind EPC Contract").
Contract Type and Value. The Mesquite Wind EPC Contract is a fixed-price, turnkey, lump-sum contract with a total contract value of approximately $480 million (as adjusted by the two change orders, which addressed scope modifications relating to site-access road configurations and substation design enhancements). The contract value includes all labor, materials, equipment, engineering, construction, testing, and commissioning costs required to deliver the project at its full 420 MW nameplate capacity.
Scope. Ridgeline is responsible for the full engineering, procurement, construction, and commissioning of the 420 MW onshore wind project, including foundation design and installation, turbine erection, electrical collection system, substation construction, operations and maintenance building, meteorological towers, and all associated civil works. The scope excludes the wind turbines themselves, which are procured separately by the project company under a direct turbine supply agreement with Northern Horizon Wind Technologies GmbH (see Section VII.B below); however, Ridgeline is responsible for the transportation of turbine components from the designated laydown area to the installation sites and for the erection and commissioning of all turbine units.
Guaranteed Completion Date. The guaranteed completion date under the Mesquite Wind EPC Contract is tied to the expected COD of Q3 2022 (specifically, September 15, 2022). As of the date of this memorandum, the project is on schedule and no milestone delays have been reported. Ridgeline has confirmed in its most recent monthly progress report (April 2022) that construction is approximately 72% complete.
Performance Guarantees. The Mesquite Wind EPC Contract includes the following performance guarantees: (a) a minimum energy production guarantee, pursuant to which Ridgeline guarantees that the facility will achieve a minimum annual energy production level (expressed in MWh) during the first year of commercial operation, as validated by an independent engineer; and (b) an availability guarantee, pursuant to which Ridgeline guarantees that the facility will achieve a minimum turbine availability percentage during the warranty period.
Liquidated Damages. The contract provides for two categories of liquidated damages: (a) delay liquidated damages, payable by Ridgeline for each day of delay beyond the guaranteed completion date, calculated on a per-day basis up to an aggregate cap; and (b) performance liquidated damages, payable by Ridgeline if the facility fails to meet the minimum energy production guarantee or availability guarantee during the first year of operation, calculated based on the shortfall below the guaranteed threshold and subject to an aggregate cap.
Warranty Period. Ridgeline provides a 2-year warranty from substantial completion for defects in workmanship and materials (excluding defects in equipment provided by original equipment manufacturers, which are covered by pass-through warranties from the applicable OEM). The workmanship warranty covers defects in construction, installation, and commissioning attributable to Ridgeline's work.
Change-of-Control. Section 18.5 of the Mesquite Wind EPC Contract contains a provision requiring the project company to deliver written notice to Ridgeline upon the occurrence of a change of control of the project company's "Parent" (defined as any entity that directly or indirectly controls the project company). The provision does not require Ridgeline's consent and does not provide Ridgeline with any termination right upon a change of control. The notice-only nature of this provision is consistent with market practice for EPC contracts, where the EPC contractor's primary concern is the creditworthiness and technical capability of the project owner rather than the identity of the ultimate parent.
Assignment. Section 19.1 provides that the Mesquite Wind EPC Contract is not assignable without Ridgeline's prior written consent, subject to a standard carve-out for collateral assignment to Prairie Commercial Bank, N.A. as lender under the $165 million construction-to-term credit facility.
Limitation of Liability. The aggregate liability of Ridgeline under the Mesquite Wind EPC Contract is capped at the total contract value (approximately $480 million). Consequential, indirect, and punitive damages are mutually excluded, subject to customary carve-outs for willful misconduct, fraud, and breaches of confidentiality.
Insurance. Builder's risk insurance is maintained by CBR (through CB Operating) at the project level. Ridgeline is required to maintain commercial general liability insurance, professional liability insurance, workers' compensation insurance, and automobile liability insurance, each in specified minimum coverage amounts, and to name Mesquite SPV and CB Operating as additional insureds.
IPO Analysis. The Mesquite Wind EPC Contract does not present any IPO-related issues beyond the requirement to deliver notice. No consent is required, and no termination right is triggered. Ridgeline's surviving warranty obligations will be unaffected by the IPO. A notice will be delivered to Ridgeline in connection with the IPO.
C. Cimarron Solar EPC Contract
Cimarron Solar Development LLC is party to an Engineering, Procurement & Construction Agreement with Sunbelt Construction Group Inc. ("Sunbelt"), dated April 9, 2021 (the "Cimarron Solar EPC Contract").
Contract Type and Value. The Cimarron Solar EPC Contract is a fixed-price, turnkey, lump-sum contract with a total contract value of approximately $390 million. No change orders have been issued as of the date of this memorandum.
Scope. Sunbelt is responsible for the full engineering, procurement, construction, and commissioning of the 350 MW solar PV project, including racking and tracker system installation, module installation, inverter and transformer installation, electrical collection system, substation construction, site grading and civil works, and all associated infrastructure. Solar PV modules and inverters are procured separately by the project company under direct supply agreements (see Section VII.C below), and Sunbelt is responsible for the installation and commissioning of the owner-furnished equipment.
Guaranteed Completion Date. The guaranteed completion date is tied to the expected COD of Q1 2023 (specifically, March 31, 2023). As of the date of this memorandum, the project is in the early stages of construction (approximately 28% complete), with site grading and foundation work underway.
Performance Guarantees and Liquidated Damages. The Cimarron Solar EPC Contract contains performance guarantee and liquidated-damages provisions similar in structure to those in the Mesquite Wind EPC Contract, including delay LDs, minimum energy-production guarantees, and performance LDs.
Change-of-Control. Section 16.3 of the Cimarron Solar EPC Contract requires the delivery of 15-day prior written notice to Sunbelt upon the occurrence of a change of control of the project company's parent. No consent is required, and Sunbelt does not have a termination right.
Assignment. Standard restrictions apply, with a lender collateral-assignment carve-out for Prairie Commercial Bank, N.A. ($143 million construction-to-term credit facility).
IPO Analysis. The Cimarron Solar EPC Contract does not present any IPO-related issues. A notice will be delivered to Sunbelt.
D. Surviving EPC Warranties — Operating Projects
We reviewed the status of EPC warranties for each of the operating projects that have achieved COD. The following is a summary of our findings:
Solaris West (COD Q3 2020). The 2-year workmanship warranty under the EPC contract (contractor: Sunbelt Construction Group Inc.) is scheduled to expire in Q3 2022. No material warranty claims have been submitted, and Dale Renfroe has confirmed that no latent defects have been identified. One minor warranty claim relating to a grading deficiency at a stormwater-management structure was submitted in October 2021 and resolved in December 2021 at no cost to the project.
Red Mesa Wind (COD Q1 2019). The 2-year workmanship warranty under the EPC contract (contractor: Ridgeline Infrastructure Partners LLC) expired in Q1 2021. No material warranty claims were submitted during the warranty period. All warranty obligations have been fully discharged.
Painted Rock Solar (COD Q4 2020). The 2-year workmanship warranty under the EPC contract (contractor: Sunbelt Construction Group Inc.) is scheduled to expire in Q4 2022. No material warranty claims have been submitted. Dale Renfroe has noted a minor inverter pad-leveling issue that is being monitored but has not yet been the subject of a formal warranty claim.
Pronghorn Wind (COD Q2 2021). The 2-year workmanship warranty under the EPC contract (contractor: Ridgeline Infrastructure Partners LLC) is scheduled to expire in Q2 2023. No material warranty claims have been submitted. The project is performing in line with expectations.
Brazos Storage (COD Q4 2021). The 2-year workmanship warranty under the EPC contract (contractor: a consortium led by Ridgeline Infrastructure Partners LLC) is scheduled to expire in Q4 2023. No warranty claims have been submitted. The battery management system is functioning within specified parameters.
Conclusion. No material outstanding warranty claims have been identified across the operating portfolio. The surviving warranty obligations do not present any issues for the IPO.
E. EPC Disclosure Requirements for S-1
Business Section. The Mesquite Wind and Cimarron Solar EPC contracts should be described in the Business section in the context of the discussion of the Company's projects under construction. Key information to be disclosed includes the identity of the EPC contractor, the general contract structure (fixed-price, turnkey), the expected COD, and the current construction status.
Risk Factors. The following EPC-related risk factor topics should be addressed:
• Construction cost overruns and the risk that actual costs may exceed the fixed contract price due to change orders, force majeure events, or disputes;
• Contractor performance risk, including the risk that the EPC contractor may experience financial difficulties, labor shortages, or supply-chain disruptions that delay project completion; and
• Supply-chain disruptions, including the risk of delays in the delivery of critical equipment and materials due to global supply-chain constraints, trade-policy changes, or transportation disruptions.
Exhibit Filing. We recommend that the Mesquite Wind and Cimarron Solar EPC contracts not be filed as exhibits to the Registration Statement under Item 601(b)(10). While these contracts are significant in value, they are construction-period contracts that will be fully performed within the near term, and the material terms can be adequately described in the narrative disclosure. Additionally, the EPC contracts contain competitively sensitive pricing information (including unit costs, labor rates, and equipment pricing) that would be disadvantageous to the Company if publicly disclosed. If the SEC staff requests the filing of these contracts, we recommend seeking confidential treatment for the pricing schedules and cost breakdowns.
V. OPERATIONS & MAINTENANCE (O&M) AGREEMENTS
A. Overview. O&M agreements are in place for all 22 operating projects in CBR's portfolio, representing 3.8 GW of total operating capacity. The O&M framework across the portfolio reflects a mix of contracting approaches:
• Full-wrap O&M agreements, under which a single third-party O&M provider assumes comprehensive responsibility for all preventive and corrective maintenance, remote monitoring, spare-parts management, and performance reporting for the applicable facility;
• Partial-scope O&M arrangements, under which separate contractors are engaged for balance-of-plant ("BOP") maintenance (including electrical systems, roads, drainage, and vegetation management) and major-component maintenance (including turbine or inverter overhauls, blade repairs, and transformer maintenance); and
• In-house O&M functions, performed by employees of Calloway-Briggs Operating Company LLC (which has approximately 1,240 employees, including site-operations staff, field technicians, and regional operations managers who support the portfolio).
The Company has engaged two primary third-party O&M providers across the portfolio: Apex Operations & Maintenance Corp. ("Apex O&M") and Westfield Energy Services LLC ("Westfield"). Apex O&M provides full-wrap O&M services for the majority of the wind projects (Red Mesa Wind, Pronghorn Wind, and several smaller wind projects in the operating portfolio), while Westfield provides O&M services for the majority of the solar projects (Solaris West, Painted Rock Solar, and several smaller solar projects). Certain projects utilize a combination of in-house and third-party O&M services.
B. Key O&M Contract Terms
The O&M agreements across the portfolio share common structural features, which we summarize below:
Term. O&M agreements generally have initial terms of 5 to 10 years, with renewal options exercisable by the project company. Renewal terms are typically in increments of 2 to 5 years. Several O&M agreements in the portfolio are approaching the end of their initial terms and will be subject to renewal or re-procurement within the next 2 to 4 years.
Scope. The scope of services under the full-wrap O&M agreements includes: scheduled and preventive maintenance in accordance with OEM-recommended maintenance schedules; corrective maintenance and emergency repairs; remote monitoring through the O&M provider's network operations center; spare-parts procurement and inventory management; performance monitoring and reporting (including monthly and annual performance reports delivered to the project company); environmental compliance monitoring; and coordination with the applicable grid operator (ERCOT, SPP, or regional transmission operator) regarding scheduled outages and real-time dispatch.
Fee Structure. O&M fees are structured as fixed annual fees (typically expressed on a per-MW or per-turbine/per-inverter basis) plus variable performance-based incentive payments. The fixed-fee component covers the base scope of services, while the variable component rewards the O&M provider for achieving availability and energy-production targets above specified thresholds. The fee structure is designed to align the O&M provider's financial incentives with the project company's interest in maximizing energy production and revenue.
Availability Guarantees. Under the full-wrap O&M agreements, the O&M provider guarantees that the facility will achieve a minimum availability percentage (typically in the range of 95% to 98%, depending on the technology and project characteristics) during each contract year. Shortfalls below the guaranteed availability threshold trigger fee reductions (i.e., the O&M provider forfeits a portion of its annual fee) or, in the case of more severe shortfalls, liquidated-damages payments from the O&M provider to the project company.
Change-of-Control. O&M agreements in the portfolio generally do not contain change-of-control provisions that are triggered by changes in ownership at the parent-company level. Certain O&M agreements contain provisions triggered by a change of control at the SPV level only — that is, a direct transfer of the project company's equity interests to a third party. These SPV-level change-of-control provisions typically require notice to the O&M provider and, in some cases, provide the O&M provider with a termination right if the new owner does not meet specified creditworthiness or operational-capability requirements. None of these provisions is triggered by the IPO, which does not change the ownership of any project-level SPV.
Assignment. O&M agreements are generally assignable to affiliates of the project company without the O&M provider's consent, subject to notice and assumption of obligations. Assignment to a non-affiliated third party requires the O&M provider's prior written consent.
Termination. O&M agreements may be terminated: (a) for cause, upon a material breach that remains uncured after a specified cure period (typically 30 to 60 days), or upon the insolvency or bankruptcy of either party; (b) for convenience, upon written notice with a notice period typically ranging from 90 to 180 days; and (c) upon a sale of the project (i.e., a transfer of all or substantially all of the assets of the project company or a transfer of all of the equity interests of the project company).
IPO Analysis. No O&M agreement in the portfolio is triggered by the IPO. No consents are required, and no notices are required under the specific terms of the O&M agreements. As a matter of courtesy and in the interest of maintaining transparent business relationships, the Company may choose to inform its O&M providers of the IPO, but there is no contractual obligation to do so.
C. Brazos Storage — Specialized O&M
The Brazos Energy Storage facility requires specialized O&M arrangements that differ from those applicable to wind and solar projects. The following agreements are in place:
Battery Management System (BMS) Maintenance Agreement. Brazos SPV is party to a BMS Maintenance and Monitoring Agreement with Apex O&M, dated January 15, 2022, covering the ongoing monitoring, calibration, and maintenance of the facility's battery management system. The BMS is a critical component of the facility that manages cell balancing, thermal management, state-of-charge optimization, and safety-system monitoring. The agreement has a 5-year term with annual renewal options thereafter.
Battery Cell Warranty and Service Agreement. Brazos SPV is party to a Battery Cell Warranty and Degradation Guarantee Agreement with Evergreen Cell Technologies Corp. ("Evergreen"), dated March 10, 2020 (the "Evergreen Warranty Agreement"), covering the lithium-ion battery cells installed in the facility. The Evergreen Warranty Agreement provides for: (a) a standard 10-year limited warranty against defects in materials and workmanship; (b) a degradation guarantee, pursuant to which Evergreen guarantees that the battery cells will retain a minimum percentage of their initial energy capacity (expressed in MWh) at specified measurement intervals over the first 15 years of operation; and (c) a cell-replenishment obligation, pursuant to which Evergreen is obligated to provide replacement cells at specified pricing if the actual degradation exceeds the guaranteed degradation curve.
The degradation guarantee and capacity-warranting provisions are critical to the long-term economics of the Brazos Storage facility and to the assumptions underlying the project's financial model and revenue projections. We have reviewed the Evergreen Warranty Agreement and confirmed that it does not contain any change-of-control or assignment provisions that would be implicated by the IPO.
D. O&M Disclosure Requirements for S-1
Business Section. A general description of CBR's O&M framework should be included in the Business section, covering the Company's approach to operations management, the roles of third-party O&M providers and in-house operations staff, and the key performance metrics used to manage the portfolio.
Risk Factors. The following O&M-related risk factor topics should be addressed:
• Reliance on third-party O&M providers, including the risk that an O&M provider may experience financial difficulties, labor shortages, or performance issues that adversely affect facility operations;
• Performance guarantees and availability targets, including the risk that actual facility performance may fall below guaranteed thresholds, resulting in reduced revenue even after accounting for O&M provider liquidated damages; and
• Retention of qualified technical staff, including the risk that th