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CALDERWOOD & HARKNESS LLP

MEMORANDUM

TO: Jennifer Kwon, Responsible Partner, Capital Markets, Calderwood & Harkness LLP

FROM: Leonard Cross, Specialist Partner, Tax Natasha Forbes, Working Associate, Capital Markets

DATE: May 30, 2022

RE: Calloway-Briggs Renewables Inc. — Review of Hypothetical-Liquidation-at-Book-Value (HLBV) Methodology for Tax-Equity Partnership Accounting; Adequacy of S-1 Disclosures; Response to SEC Comment Letter Concerns

C&H Matter No.: 1015-00001

CC: Brendan Walsh, Lead Associate, Capital Markets Theodore Langston, Billing Partner, Capital Markets

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I. Executive Summary and Purpose

This memorandum reviews the Hypothetical-Liquidation-at-Book-Value ("HLBV") methodology applied by Calloway-Briggs Renewables Inc. ("CBR" or the "Company") to account for its tax-equity partnership structures, principally the Solaris West tax-equity partnership entered into with Veltara Basin Financial LLC ("Veltara Basin"). The Solaris West arrangement is the Company's sole existing partnership-flip tax-equity structure and involves a $280,000,000 tax-equity investment by Veltara Basin in a 450 MW utility-scale solar photovoltaic project located in Pecos County, Texas. Given the materiality of this arrangement to the Company's consolidated financial statements and its prominence in the draft registration statement on Form S-1, a thorough review of the HLBV methodology and related disclosures is warranted as part of the Calderwood & Harkness deal team's due diligence and disclosure review process.

The purposes of this memorandum are fourfold:

1. Evaluate the appropriateness of the HLBV methodology as applied to CBR's tax-equity arrangements. We assess whether the Company's application of the HLBV method is consistent with the relevant authoritative accounting guidance — principally ASC 323 (Investments — Equity Method and Joint Ventures), ASC 740 (Income Taxes), and ASC 810 (Consolidation) — as well as prevailing industry practice among publicly traded renewable-energy companies with comparable partnership-flip structures.

2. Assess the adequacy of HLBV-related disclosures in the draft registration statement. The Company filed a draft registration statement on Form S-1 (SEC CIK 0001948372), which has since been amended twice. We evaluate the HLBV-related disclosures in the Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), the financial-statement footnotes, and the risk factors across all versions of the filing, with particular focus on the most recent iteration — Amendment No. 2 (filed June 10, 2022; EDGAR Accession No. 0001948372-22-000003).

3. Address specific SEC comment letter concerns. The SEC Division of Corporation Finance issued a first-round comment letter on May 6, 2022, containing eighteen (18) comments, and a second-round comment letter on June 3, 2022, containing seven (7) comments. Several of these comments included targeted questions regarding the Company's HLBV methodology, the basis for consolidation of the Solaris West SPV, and the adequacy of related disclosures. We analyze these comments and the Company's responses in detail.

4. Coordinate with the Company's independent auditor and external tax advisor. We discuss the alignment of the accounting treatment, tax analysis, and disclosure language among Calderwood & Harkness LLP, Ashford & Pemberton LLP (the Company's independent auditor; lead engagement partner Gregory Sondheim, CPA; audit manager Irene Valdez, CPA), and Kessler McBride & Associates LLP ("KMA"; external tax advisor; Alan Kessler, Managing Partner; Linda McBride, Partner, Tax Structures).

Summary Conclusion. Based on our review, we conclude that the HLBV methodology as applied by CBR is consistent with ASC 323 and ASC 740 guidance and with industry practice for utility-scale renewable energy companies employing partnership-flip tax-equity structures. The S-1 disclosures as revised in Amendment No. 2 (filed June 10, 2022; EDGAR Accession No. 0001948372-22-000003) are adequate to address the SEC Staff's HLBV-related comments, as evidenced by the oral clearance indicated on June 14, 2022, subject to the pricing amendment. However, we recommend certain refinements — most notably the addition of quantitative sensitivity analysis — for any future reactivation of the offering. These recommendations, together with open action items and monitoring obligations during the dormancy period, are detailed in Section X below.

II. Background

A. CBR's Tax-Equity Partnership Structure — Solaris West

The Solaris West solar energy project is the centerpiece of the HLBV analysis and the primary focus of the SEC Staff's comment letter inquiries. We summarize the key structural parameters below.

Project Entity. The project is held through Solaris West Solar LLC, a Texas limited liability company organized as the special-purpose vehicle ("SPV") for the solar project. Solaris West Solar LLC is 100% owned by Calloway-Briggs Operating Company LLC, which is in turn 100% owned by CBR Holdings LLC, an intermediate holding company that is itself 100% owned by CBR. This chain of ownership is relevant both to the consolidation analysis under ASC 810 (discussed in Section IV below) and to the SEC Staff's inquiry regarding the basis for consolidation versus equity-method treatment.

Technology and Capacity. Solaris West is a utility-scale solar photovoltaic installation with a nameplate generating capacity of 450 megawatts (MW). The project utilizes single-axis tracking technology and is situated on approximately 4,200 acres of leased land in Pecos County, Texas. The project sells substantially all of its output pursuant to long-term power purchase agreements ("PPAs") with investment-grade offtakers, the details of which are disclosed in the S-1 and addressed in a separate PPA revenue disclosure memorandum.

Commercial Operation Date. The project achieved commercial operation in the third quarter of 2020 ("COD"), at which point the tax-equity investor's economic participation became fully effective under the partnership agreement.

Tax-Equity Investor. Veltara Basin Financial LLC is a Delaware limited liability company with its principal office at 2029 Century Park East, Suite 1500, Los Angeles, California 90067. The primary contact for the tax-equity arrangement is Karen Fujimoto, Partner, Tax Equity Investments. Veltara Basin is an established participant in the renewable-energy tax-equity market and maintains a portfolio of similar investments across solar, wind, and battery-storage asset classes.

Investment Amount. Veltara Basin committed and funded a tax-equity investment of $280,000,000 in connection with the Solaris West project. This investment was made in exchange for (i) an allocation of Investment Tax Credits ("ITCs") generated by the solar PV assets, (ii) an allocation of accelerated depreciation deductions (including bonus depreciation under Section 168(k) of the Internal Revenue Code), and (iii) specified cash distributions during the pre-flip period, all as set forth in the Solaris West partnership agreement.

Structure — Partnership Flip. The arrangement is structured as a "partnership flip," the predominant tax-equity financing structure in the U.S. renewable-energy sector. Under this structure, the allocation of tax benefits and economic returns between CBR (as managing member/sponsor) and Veltara Basin (as tax-equity investor) shifts — or "flips" — upon the achievement by Veltara Basin of its targeted after-tax internal rate of return ("IRR"). During the pre-flip period, Veltara Basin receives the substantial majority of tax benefits and a specified share of cash distributions. Following the flip, economic interests revert to CBR, with Veltara Basin retaining a nominal residual interest.

Expected Flip Date. The flip is expected to occur in 2028, based on current projections of project performance, tax benefit utilization, and cash distributions. The timing of the flip is sensitive to several variables, including the project's energy production, operating costs, and any changes in applicable tax law. Sensitivity of the flip date to changes in assumptions is discussed in Section IV.C below.

Tax Credits. Veltara Basin is the primary recipient of ITCs under Section 48 of the Internal Revenue Code, which are allocated in accordance with the partnership agreement. The ITCs were generated upon the placement in service of the solar PV assets and have been substantially claimed by Veltara Basin on its federal income tax returns.

ITC Recapture Risk. The risk that the proposed IPO or related corporate restructuring transactions could trigger recapture of the ITCs under Section 50(a) of the Internal Revenue Code has been analyzed in a separate Tax-Equity Structure Memorandum prepared by this firm in coordination with Kessler McBride & Associates LLP. That analysis concluded that no recapture event is triggered by the proposed IPO. We do not repeat that analysis here, but note that the ITC recapture risk is relevant to the HLBV calculation to the extent that a hypothetical recapture event could affect the liquidation waterfall and capital-account balances used in the HLBV model.

B. Other Tax-Equity Considerations Across the Portfolio

While Solaris West is the only project currently subject to a tax-equity partnership-flip arrangement, the broader context of CBR's portfolio is relevant to the disclosure analysis and the SEC Staff's forward-looking inquiries.

CBR operates a 3.8 GW portfolio of utility-scale renewable energy assets across twenty-two (22) projects located in Texas, New Mexico, Arizona, California, and Oklahoma. In addition, the Company has 1.4 GW of generation capacity under active construction, comprising:

• Mesquite Wind — a 420 MW wind energy project in Oldham County, Texas, with an expected COD in Q3 2022; and

• Cimarron Solar — a 350 MW solar PV project in Doña Ana County, New Mexico, with an expected COD in Q1 2023.

Beyond the construction-stage projects, CBR maintains a development pipeline of approximately 6.2 GW of additional projects in various stages of development. The Company's management has indicated — both in discussions with Calderwood & Harkness and in forward-looking disclosures in the S-1 — that future projects, including those in the development pipeline, may utilize partnership-flip tax-equity structures similar to the Solaris West arrangement. To the extent that such structures are entered into, additional HLBV analysis and disclosure will be required.

We note that certain other aspects of the IPO transaction — including the 2022 Omnibus Equity Incentive Plan (with a reserve of 12,727,273 shares of common stock) and the broader corporate restructuring actions undertaken in connection with the offering — do not affect the HLBV analysis. The HLBV methodology operates at the partnership level (i.e., within the Solaris West SPV) and is not directly implicated by changes in CBR's corporate-level equity structure or incentive compensation arrangements.

C. Relevant Financial Data

The following financial data provide context for the materiality of the Solaris West tax-equity arrangement to CBR's consolidated financial statements:

Annual Operating Results (Audited by Ashford & Pemberton LLP):

Balance Sheet (as of December 31, 2021):

Interim Results (Unaudited):

The Solaris West tax-equity investment of $280,000,000 represents a material component of CBR's balance sheet. The noncontrolling interest attributable to Veltara Basin — as calculated under the HLBV methodology — affects the allocation of income and loss between the Company and Veltara Basin as reflected in CBR's consolidated financial statements for FY 2020, FY 2021, and the Q1 2022 interim period. Changes in the HLBV allocation can have a meaningful impact on the net income attributable to CBR's common stockholders, which is a key metric for investors evaluating the offering.

III. Overview of the HLBV Methodology

A. Conceptual Framework

The Hypothetical-Liquidation-at-Book-Value method is an equity method of accounting used to allocate income or loss among partners in a partnership where the partners' economic interests differ from their stated profit-and-loss sharing ratios. This divergence between economic interests and stated sharing ratios is a defining characteristic of renewable-energy partnership-flip tax-equity structures, where the tax-equity investor's return is primarily derived from tax benefits (ITCs and depreciation deductions) rather than from cash distributions or stated profit allocations.

Under the HLBV method, at each reporting date, the partnership's net assets are hypothetically liquidated at their GAAP book value — that is, at the carrying amounts reflected on the partnership's balance sheet prepared in accordance with U.S. generally accepted accounting principles. The resulting hypothetical liquidation proceeds are then distributed to each partner in accordance with the liquidation waterfall provisions set forth in the partnership agreement. This waterfall typically specifies the order of priority for the return of capital contributions, the distribution of any preferred return, and the allocation of residual proceeds.

The change in each partner's hypothetical claim on the partnership's net assets from one reporting date to the next — after adjusting for any actual contributions made by, and distributions paid to, such partner during the period — determines that partner's share of the partnership's income or loss for the reporting period. In algebraic terms:

Partner's share of income (loss) = Ending HLBV claim − Beginning HLBV claim − Contributions + Distributions

This approach ensures that the income or loss allocation reflects the economic substance of the partnership arrangement — specifically, the shifting of value between partners that occurs as the tax-equity investor receives its targeted return and the flip date approaches — rather than merely reflecting the stated profit-and-loss sharing percentages, which may bear little relationship to the economic outcomes.

The HLBV method is widely accepted under U.S. GAAP and is the predominant approach used in the renewable-energy industry for allocating earnings in partnerships where the partnership agreement contains complex allocation provisions, including flip structures, preferred returns, and capital-account-based waterfalls. As discussed further in Section IX below, a review of recent public filings by comparable renewable-energy issuers confirms that HLBV is the standard methodology for this purpose.

B. Authoritative Guidance

The application of the HLBV methodology is supported by the following principal sources of authoritative and interpretive guidance:

ASC 323-10-35 (Equity Method — Subsequent Measurement). ASC 323 governs the equity method of accounting for investments in partnerships and other entities where the investor has the ability to exercise significant influence. ASC 323-10-35-26 through 35-28 address the allocation of earnings in partnerships where the investor's economic interest differs from its stated profit-and-loss sharing ratio. The guidance contemplates the use of a hypothetical-liquidation approach when the partnership agreement's distribution provisions would result in materially different allocations upon liquidation than would be indicated by the stated sharing ratios. This is precisely the circumstance presented by a partnership-flip tax-equity structure, where the pre-flip and post-flip allocation percentages differ dramatically.

ASC 740 (Income Taxes). ASC 740 governs the accounting for income taxes, including the recognition and measurement of deferred tax assets and liabilities. The HLBV analysis intersects with ASC 740 in several respects. First, the tax components of the partnership allocations — including the allocation of ITCs and depreciation deductions — are a primary driver of the economics of the tax-equity arrangement and directly affect the capital-account balances used in the hypothetical-liquidation calculation. Second, the deferred tax liability arising from book-tax basis differences in the Solaris West solar PV assets must be properly reflected in the HLBV model to ensure that the hypothetical-liquidation distribution is consistent with the economic substance of the arrangement. Coordination with Kessler McBride & Associates LLP on these tax-related inputs is discussed in Section VI below.

ASC 810 (Consolidation). ASC 810 governs the consolidation of variable interest entities ("VIEs") and the determination of the primary beneficiary. In CBR's case, the Solaris West SPV is consolidated by CBR rather than accounted for under the equity method, because CBR is the managing member, retains all voting interests, and is the primary beneficiary under the VIE analysis set forth in ASC 810-10. The HLBV method is applied in this context not to determine CBR's share of the SPV's earnings (since the SPV is fully consolidated), but rather to allocate the earnings between the controlling interest (CBR) and the noncontrolling interest (Veltara Basin). This distinction was the subject of an SEC Staff comment, addressed in Section VII below.

AICPA Accounting and Valuation Guide. The AICPA's Accounting and Valuation Guide: Valuation of Portfolio Company Investments of Venture Capital and Private Equity Funds and Other Investment Companies provides analogous guidance on the allocation of value among holders of different classes of equity with differing economic rights. While this guide is directed primarily at investment companies, its framework for analyzing complex equity-method allocations — including the use of hypothetical-liquidation approaches — is instructive by analogy in the tax-equity partnership context.

Industry Practice Guidance. The major accounting firms have published extensive practice guidance regarding the application of the HLBV methodology to renewable-energy tax-equity partnerships. While these publications are not authoritative pronouncements, they reflect a consensus of professional practice that supports the approach taken by CBR and validated by Ashford & Pemberton LLP. We have reviewed relevant portions of this guidance in connection with this memorandum but do not reproduce or quote it here due to proprietary restrictions.

C. Key Inputs to the HLBV Calculation

The HLBV calculation for the Solaris West tax-equity partnership relies on the following key inputs, each of which involves varying degrees of judgment and estimation:

1. Partnership Agreement Liquidation Waterfall. The liquidation provisions of the Solaris West partnership agreement specify the priority and order of distributions upon a hypothetical liquidation of the SPV. These provisions distinguish between the pre-flip period (during which Veltara Basin's economic interest is predominant) and the post-flip period (during which CBR's economic interest increases substantially). The waterfall includes provisions for the return of capital contributions, the allocation of any shortfall or surplus, and the treatment of accumulated and unpaid preferred returns.

2. Book Value of Solaris West SPV's Net Assets. At each reporting date, the GAAP carrying amounts of all assets and liabilities of the Solaris West SPV are determined, yielding the net asset value available for hypothetical distribution. The most significant component of the SPV's assets is the solar PV plant and associated equipment, which is carried at historical cost less accumulated depreciation.

3. Capital Contributions by Each Partner. CBR contributed its sponsor equity to the partnership, and Veltara Basin contributed $280,000,000 in tax-equity capital. These contributions establish the initial capital-account balances from which the HLBV calculation proceeds.

4. Distributions Made to Each Partner During the Period. Actual cash distributions made by the SPV to CBR and Veltara Basin during each reporting period are netted against the HLBV allocation to determine each partner's share of income or loss.

5. Tax Credit and Tax Benefit Allocations. The ITCs allocated to Veltara Basin, together with the accelerated depreciation deductions, are reflected in the capital-account balances and directly affect the hypothetical-liquidation distribution. These allocations are among the most significant drivers of the HLBV income/loss pattern.

6. Depreciation and Amortization Schedules. The useful-life assumptions applied to the solar PV assets determine the rate at which the book value of those assets declines over time, which in turn affects the hypothetical liquidation proceeds available for distribution at each reporting date.

7. Expected Flip Date and Conditions Precedent. The expected 2028 flip date, and the conditions that must be satisfied for the flip to occur (principally, Veltara Basin's achievement of its target after-tax IRR), are embedded in the HLBV model. Changes in the expected flip date — whether due to changes in project performance, tax-law changes, or other factors — can have a material effect on the pattern of income/loss allocations between periods.

IV. Application of HLBV to the Solaris West Tax-Equity Partnership

A. Partnership Agreement Structure

The Solaris West Solar LLC partnership agreement establishes a two-member structure with the following key features:

Members. CBR, acting through its wholly owned subsidiary Calloway-Briggs Operating Company LLC, serves as the managing member and sponsor. Veltara Basin Financial LLC participates as the tax-equity investor and a non-managing member.

Pre-Flip Allocations. During the pre-flip period (from COD through the expected flip date in 2028), the partnership agreement provides that Veltara Basin receives approximately 99% of all tax benefits generated by the partnership, including ITCs and accelerated depreciation deductions. CBR receives the remaining approximately 1% of tax benefits. Cash distributions during the pre-flip period are allocated to Veltara Basin at a specified percentage that is substantially lower than the tax-benefit allocation percentage, reflecting the fact that Veltara Basin's return is primarily tax-driven rather than cash-driven. CBR receives the residual cash flow.

Post-Flip Allocations. Following the flip (expected 2028), the allocation percentages revert, with CBR receiving approximately 95% of all economics — including both tax allocations and cash distributions — and Veltara Basin retaining approximately 5%. This reversion is the defining structural feature of the partnership-flip arrangement and is the reason that the HLBV methodology, rather than a simple pro-rata allocation based on stated percentages, is necessary to capture the economic substance of the arrangement.

Flip Trigger. The flip is triggered upon Veltara Basin's achievement of its target after-tax internal rate of return, as calculated in accordance with the methodology specified in the partnership agreement. The target IRR reflects the market rate for comparable tax-equity investments at the time the arrangement was negotiated. The determination of whether the target IRR has been achieved is based on cumulative tax benefits received, cash distributions, and the time value of money.

Liquidation Waterfall. Upon a hypothetical liquidation of the partnership (or an actual liquidation), the proceeds are distributed in the following order of priority:

(a) First, to each partner in proportion to and to the extent of each partner's positive adjusted capital account balance (as determined under the partnership agreement's capital-account maintenance provisions, which are intended to comply with the requirements of Treasury Regulations Section 1.704-1(b)(2)(iv));

(b) Second, any remaining proceeds are distributed to the partners in accordance with their respective post-flip economic percentages (i.e., approximately 95% to CBR and approximately 5% to Veltara Basin).

This waterfall governs the hypothetical distribution at each reporting date under the HLBV method and is the mechanism through which the shifting economics of the partnership are translated into period-by-period income/loss allocations.

B. HLBV Calculation Mechanics as Applied by CBR

CBR applies the HLBV methodology at each reporting date — quarterly for interim financial reporting and annually for audited financial statements — to determine the allocation of income or loss between the controlling interest (CBR) and the noncontrolling interest (Veltara Basin) within the consolidated Solaris West SPV.

The calculation proceeds in the following steps:

Step 1: Determine the GAAP book value of the Solaris West SPV's net assets. At each reporting date, CBR prepares a balance sheet for the Solaris West SPV reflecting the GAAP carrying amounts of all assets (principally the solar PV plant, land-use rights, and working capital) and all liabilities (principally project-level debt, accounts payable, and accrued expenses). The difference between total assets and total liabilities yields the net assets available for hypothetical distribution.

Step 2: Apply the liquidation waterfall to determine each partner's hypothetical claim. The net assets determined in Step 1 are hypothetically distributed to CBR and Veltara Basin in accordance with the liquidation waterfall described in Section IV.A above. This requires a determination of each partner's adjusted capital-account balance as of the reporting date, reflecting cumulative contributions, distributions, income/loss allocations, and tax-benefit allocations.

Step 3: Compare each partner's hypothetical claim to the prior period. The change in each partner's hypothetical claim on the SPV's net assets from the beginning of the period to the end of the period is calculated.

Step 4: Adjust for actual contributions and distributions. Any actual contributions made by, and distributions paid to, each partner during the period are netted against the change in hypothetical claim.

Step 5: Determine each partner's share of income or loss. The resulting amount — the change in hypothetical claim, adjusted for contributions and distributions — represents that partner's share of the partnership's income or loss for the period.

Because the ITC and accelerated depreciation reduce Veltara Basin's capital account (reflecting the tax benefits received and the corresponding reduction in the economic value that Veltara Basin would receive upon a hypothetical liquidation), the HLBV method results in a pattern of income/loss allocation that may differ significantly from the stated pre-flip allocation percentages. In particular, during the early years of the partnership — when the tax benefits are most heavily weighted toward Veltara Basin and the solar PV assets are being rapidly depreciated — the HLBV method may allocate a disproportionate share of "income" (or a reduced share of "loss") to CBR, reflecting the fact that CBR's residual economic claim on the partnership's net assets is increasing as Veltara Basin's capital account is depleted by the tax allocations.

CBR's consolidated financial statements reflect the net effect of this calculation. The Solaris West SPV is fully consolidated in CBR's financial statements, with the portion of the SPV's net assets and net income attributable to Veltara Basin reported as a noncontrolling interest. The HLBV methodology determines the amount of net income (or net loss) allocated to this noncontrolling interest in each period, with the residual allocated to CBR.

C. Key Assumptions and Judgments

The HLBV calculation involves several areas of significant judgment and estimation, each of which can materially affect the allocation of income or loss between the partners. We highlight the following key assumptions:

Book Value of Solar PV Assets. The GAAP carrying value of the Solaris West solar PV assets is the largest component of the SPV's net assets and is therefore the primary driver of the hypothetical liquidation proceeds. The carrying value is determined based on the historical cost of the assets (including capitalized construction costs, equipment costs, and development costs) less accumulated depreciation. The useful-life assumption applied to the solar PV assets — currently estimated at 30 years for the modules and 25 years for the balance-of-system components — directly affects the rate of depreciation and, consequently, the trajectory of the HLBV allocations over the life of the partnership. A shorter useful life would accelerate depreciation, reduce book value more rapidly, and alter the timing of the HLBV income/loss allocations.

Timing and Certainty of the Flip. The expected 2028 flip date is a critical input to the HLBV model, as it determines the point at which the allocation percentages shift from pre-flip to post-flip levels. The flip date is sensitive to project performance (energy production, capacity factor, curtailment), operating costs, the tax-equity investor's utilization of tax benefits, and any changes in applicable tax law. A delay in the flip date would extend the period during which Veltara Basin receives the substantial majority of tax benefits, potentially reducing the income allocated to CBR in the interim periods and increasing it in later periods. Conversely, an acceleration of the flip date would have the opposite effect. The HLBV model incorporates management's best estimate of the flip date, which is reviewed and updated at each reporting date.

Treatment of ITC Recapture Risk. In the HLBV hypothetical-liquidation scenario, the question arises whether the hypothetical liquidation itself would trigger ITC recapture under Section 50(a) of the Internal Revenue Code (which generally imposes recapture if the solar PV assets are disposed of or cease to be used as Section 48 property within five years of being placed in service). Because the Solaris West project achieved COD in Q3 2020, the five-year recapture period will not expire until Q3 2025. The treatment of this recapture risk in the hypothetical-liquidation scenario requires judgment: if the recapture is assumed to occur in the hypothetical liquidation, it would reduce Veltara Basin's capital account (because the recapture obligation would be allocated to Veltara Basin) and thereby affect the HLBV allocation. CBR's HLBV model reflects a probability-weighted assessment of this risk, consistent with A&P's audit approach.

discount Rate / Target IRR. The target after-tax IRR embedded in the partnership agreement determines when the flip occurs and, by extension, the trajectory of the HLBV allocations. While the specific target IRR is commercially sensitive and is not disclosed in the S-1, it is an input to the HLBV model's projection of the flip date. Changes in market conditions that could affect the comparability of the target IRR to current market rates are monitored but do not directly alter the contractual target.

Recognition of HLBV "Income" in Early Years. A conceptual question inherent in the HLBV methodology is whether the "income" allocated to CBR in the early years of the partnership — which largely reflects the shifting of future economic value from the tax-equity investor to the sponsor as the tax benefits are consumed — should be recognized in the period in which the shift occurs or deferred to future periods. Under the HLBV methodology as described in ASC 323 and as consistently applied in industry practice, such income is recognized in the period in which the change in hypothetical-liquidation claim occurs, without deferral. CBR applies this treatment, and A&P has confirmed its appropriateness in the context of the FY 2020 and FY 2021 audits.

V. Coordination with Ashford & Pemberton LLP (Independent Auditor)

A. Audit Approach

Gregory Sondheim, CPA (lead engagement partner) and Irene Valdez, CPA (audit manager) at Ashford & Pemberton LLP ("A&P") have served as CBR's independent auditor for the fiscal years ended December 31, 2019, 2020, and 2021. In connection with the proposed IPO, A&P has also performed agreed-upon procedures with respect to the Q1 2022 interim financial data (unaudited), which is included in the registration statement.

A&P confirmed, both in their audit workpapers (relevant sections of which were provided to Calderwood & Harkness on a limited, privileged basis for purposes of the S-1 review) and in direct discussions with the Calderwood & Harkness deal team, that they reviewed the HLBV calculations for the Solaris West tax-equity partnership as a key audit matter in the FY 2020 and FY 2021 audits. The HLBV review was included in A&P's audit plan as a significant risk area due to the materiality of the tax-equity arrangement and the complexity of the allocation methodology.

A&P's audit procedures included, among other things: (i) obtaining and reviewing the Solaris West partnership agreement, with particular focus on the liquidation waterfall and allocation provisions; (ii) testing the mathematical accuracy of CBR's HLBV model; (iii) evaluating the reasonableness of the key assumptions described in Section IV.C above; (iv) independently recalculating the hypothetical-liquidation distribution for selected reporting dates; (v) assessing the consistency of the HLBV methodology with ASC 323 and industry practice; and (vi) reviewing the financial-statement disclosures related to the HLBV methodology and the noncontrolling interest.

A&P concluded that CBR's application of the HLBV methodology is consistent with ASC 323 and is appropriate for the partnership-flip structure. A&P's unqualified audit opinion on CBR's consolidated financial statements for FY 2019, FY 2020, and FY 2021 encompasses the HLBV-related financial-statement line items, including the noncontrolling interest balance and the allocation of net income between the controlling and noncontrolling interests.

A&P's draft comfort letter (dated June 8, 2022) covers the audited financial statements and the Q1 2022 interim financial data. The HLBV methodology and the noncontrolling interest balance were within the scope of the comfort-letter procedures. Three circle-up procedures are planned for the comfort letter: an initial comfort letter at the time of effectiveness, a bring-down letter prior to closing, and a letter at pricing. As of the date of this memorandum, the initial draft has been received and is under review.

B. A&P's Key Observations

In the course of their audit work and in discussions with the Calderwood & Harkness deal team, A&P made the following observations regarding the HLBV methodology as applied by CBR:

Earnings Volatility. A&P noted that the HLBV methodology results in non-cash income/loss allocations that can create volatility in CBR's reported earnings, particularly as the Solaris West assets depreciate and the expected flip date approaches. This volatility arises because the HLBV allocation is sensitive to changes in the book value of the SPV's net assets (which decline as depreciation accumulates) and to changes in the capital-account balances of the partners (which shift as tax benefits are allocated and distributions are made). A&P observed that this volatility is inherent in the HLBV methodology and is not indicative of an error in its application, but recommended that the Company provide enhanced disclosure to help investors understand the source and expected pattern of the volatility.

Enhanced Footnote Disclosure. A&P recommended that the financial-statement footnotes include enhanced disclosure regarding the sensitivity of the HLBV allocations to changes in key assumptions, specifically: (i) the useful life of the solar PV assets; (ii) the expected flip date; and (iii) the treatment of ITC recapture risk. A&P noted that such disclosure is consistent with the trend in SEC Staff expectations for renewable-energy companies with material tax-equity arrangements.

Incorporation of Recommendations. A&P's recommendations were discussed among the Company's management team (Marcus Yoon, Chief Financial Officer; Priya Anand, Vice President, Accounting and Tax), Calderwood & Harkness, and A&P during a joint working session held on May 14, 2022. The recommended enhancements were incorporated into the revised critical-accounting-policies discussion in the MD&A section of Amendment No. 1 (filed May 20, 2022; EDGAR Accession No. 0001948372-22-000002) and were further refined in Amendment No. 2.

VI. Coordination with Kessler McBride & Associates LLP (Tax Advisor)

A. Tax Structuring Input

Alan Kessler, Managing Partner, and Linda McBride, Partner, Tax Structures, at Kessler McBride & Associates LLP ("KMA") serve as CBR's external tax advisor for the IPO and have deep institutional familiarity with the Solaris West tax-equity structure, having advised on its initial structuring and documentation in 2019–2020.

KMA has confirmed, in written memoranda and in discussions with the Calderwood & Harkness deal team, the following critical points:

Safe Harbor Compliance. The partnership-flip structure complies with the safe harbor established under Revenue Procedure 2007-65, which provides a framework for the IRS's acceptance of partnership allocations in wind-energy transactions and which has been applied by analogy (and subsequently confirmed through subsequent IRS guidance) to solar-energy transactions. KMA's analysis addresses the specific requirements of the safe harbor, including the minimum investor-at-risk threshold, the reasonable-expected-value-of-tax-benefits limitation, and the bona-fide-equity-investment standard.

No ITC Recapture from IPO. KMA has confirmed that the proposed IPO does not constitute a "disqualifying event" that would trigger ITC recapture under Section 50(a) of the Internal Revenue Code. The detailed analysis supporting this conclusion is set forth in the separate Tax-Equity Structure Memorandum and is not repeated here. In summary, KMA concluded that the IPO transaction — which involves a sale of newly issued shares of CBR common stock to the public — does not result in a disposition of the solar PV assets, a change in the use of the assets, or a cessation of the assets' qualification as Section 48 property.

Tax-Basis Inputs to HLBV. KMA provided detailed input on the tax-basis versus book-basis differences that affect the HLBV calculation. These differences arise principally from: (i) the accelerated depreciation deductions (including bonus depreciation) claimed for tax purposes, which reduce the tax basis of the solar PV assets more rapidly than GAAP depreciation reduces the book basis; and (ii) the ITCs, which are allocated to Veltara Basin and reduce Veltara Basin's capital account for tax purposes but may be treated differently for GAAP purposes. KMA's analysis ensures that the HLBV model correctly reflects the Section 704(b) capital-account maintenance requirements — i.e., that the capital accounts used in the hypothetical-liquidation waterfall are maintained in accordance with the Treasury Regulations governing partnership allocations, rather than on a tax-basis or a pure-GAAP-basis.

B. Alignment Between Tax and GAAP Treatment

The alignment between the tax treatment and the GAAP treatment of the Solaris West partnership allocations is critical to the integrity of the HLBV calculation. KMA's review addressed the following areas of potential divergence:

Liquidation Waterfall Consistency. KMA confirmed that the liquidation waterfall in the partnership agreement, as used in the HLBV calculation, is consistent with the Section 704(b) and Section 704(c) allocation provisions of the Internal Revenue Code and the Treasury Regulations thereunder. Section 704(b) requires that partnership allocations have "substantial economic effect," which in practice means that the allocations must be consistent with the capital-account maintenance and liquidation-in-accordance-with-capital-accounts provisions of Treasury Regulations Section 1.704-1(b)(2)(ii). The HLBV model's use of capital-account balances maintained under these provisions ensures that the GAAP allocation is grounded in the economic substance of the partnership arrangement as recognized for tax purposes.

ASC 740 Alignment. KMA reviewed the HLBV model's treatment of the deferred tax liability arising from book-tax basis differences in the Solaris West solar PV assets and confirmed that the treatment is aligned with the requirements of ASC 740. Specifically, the deferred tax liability is measured based on the temporary difference between the GAAP carrying amount and the tax basis of the assets, using the enacted tax rate expected to apply when the temporary difference reverses. This deferred tax liability is a component of the SPV's GAAP balance sheet and is included in the net assets available for hypothetical distribution under the HLBV model. KMA confirmed that the interaction between the deferred tax liability and the HLBV allocation does not give rise to any circular or self-referencing calculation that could distort the results.

ITC Pass-Through Treatment. KMA noted that the ITC "pass-through" to Veltara Basin — whereby the ITCs generated by the solar PV assets are allocated to Veltara Basin as the tax-equity investor — is properly reflected in the HLBV model as a reduction to Veltara Basin's capital account. This reduction reflects the economic reality that Veltara Basin has received a significant portion of its targeted return in the form of tax credits, which reduces the amount that Veltara Basin would be entitled to receive upon a hypothetical liquidation. The HLBV model correctly captures this dynamic by reducing Veltara Basin's hypothetical claim on the SPV's net assets as the ITCs are utilized, with the corresponding increase in CBR's hypothetical claim recognized as income to CBR under the HLBV method.

VII. SEC Comment Letter Concerns Regarding HLBV

A. First-Round Comment Letter (Received May 6, 2022 — 18 Comments Total)

The SEC Division of Corporation Finance issued its first-round comment letter on the Company's draft registration statement on Form S-1 on May 6, 2022. The letter contained eighteen (18) comments spanning a range of topics, including financial-statement presentation, MD&A disclosure, risk factors, executive compensation, and non-GAAP financial measures. Among these eighteen comments, at least two specifically addressed the HLBV methodology and related disclosures:

Comment on Critical Accounting Policies (MD&A). The Staff observed that the Company's critical-accounting-policies discussion in the MD&A section of the initial draft S-1 contained only a brief reference to the HLBV methodology and did not provide sufficient detail for an investor to understand how the methodology operates, what assumptions drive the allocation, or how sensitive the Company's reported results are to changes in those assumptions. The Staff requested that CBR expand its disclosure of the HLBV methodology to include, at a minimum:

(i) a more detailed explanation of how income and loss are allocated between CBR and its tax-equity partner under the HLBV method, including a description of the hypothetical-liquidation concept and the role of the partnership agreement's waterfall provisions;

(ii) identification of the key inputs and assumptions underlying the HLBV calculation, including the book value of the partnership's net assets, the capital-account balances, the expected flip date, and the useful-life assumptions for the solar PV assets; and

(iii) a discussion of the sensitivity of the Company's reported results to changes in these key assumptions, including a qualitative or quantitative indication of the magnitude of the potential impact.

Comment on Tax-Equity Accounting. The Staff asked CBR to clarify the basis for consolidating the Solaris West SPV — as opposed to accounting for CBR's interest in the SPV under the equity method — and to explain why the HLBV method (rather than a pro-rata or other allocation method) is the most appropriate approach for allocating earnings between the controlling and noncontrolling interests within the consolidated SPV. The Staff noted that the distinction between consolidation and equity-method accounting has implications for the presentation of revenues, expenses, assets, and liabilities in the Company's financial statements, and requested that the Company address this distinction clearly in its disclosures.

B. Response in Amendment No. 1 (Filed May 20, 2022)

In the response letter dated May 20, 2022, prepared by Calderwood & Harkness LLP on behalf of CBR, the Company provided detailed responses to both HLBV-related comments.

With respect to the critical-accounting-policies comment, the MD&A section of Amendment No. 1 was substantially expanded to include a dedicated subsection on the HLBV methodology within the critical-accounting-policies discussion. The revised disclosure includes:

(i) A description of the HLBV methodology, explaining the hypothetical-liquidation concept and the role of the partnership agreement's waterfall provisions in determining each partner's share of income or loss;

(ii) Identification of the Solaris West partnership as the material tax-equity arrangement to which the HLBV methodology is applied, including disclosure of the $280,000,000 tax-equity investment by Veltara Basin Financial LLC;

(iii) Identification of the key assumptions underlying the HLBV calculation, including the useful life of the solar PV assets, the expected flip date (2028), and the target after-tax IRR;

(iv) A qualitative sensitivity discussion explaining that changes in these key assumptions — particularly the flip date and useful-life estimates — could materially affect the allocation of income or loss between CBR and Veltara Basin and, consequently, the net income attributable to CBR's common stockholders; and

(v) Cross-references to the relevant financial-statement footnotes containing the detailed HLBV-related disclosures.

With respect to the consolidation and allocation-method comment, the response letter explained that the Solaris West SPV is consolidated by CBR because CBR is the managing member of the SPV, holds 100% of the voting interests (through its wholly owned subsidiary chain), and is the primary beneficiary under the variable-interest-entity analysis set forth in ASC 810-10. Specifically, CBR has both (a) the power to direct the activities of the SPV that most significantly impact its economic performance (through its role as managing member) and (b) the obligation to absorb losses and the right to receive benefits that could potentially be significant to the SPV. The response further explained that the HLBV method is used to allocate the earnings to the noncontrolling interest (Veltara Basin) because the partnership agreement's complex allocation provisions — including the flip structure, the differential allocation of tax benefits versus cash distributions, and the capital-account-based liquidation waterfall — make a simple pro-rata allocation method inappropriate. Under a pro-rata method, the income/loss allocation would be based on stated profit-and-loss sharing percentages that do not reflect the economic substance of the arrangement, particularly the shifting of value between the partners as the tax benefits are consumed.

C. Second-Round Comment Letter (Received June 3, 2022 — 7 Comments Total)

The SEC Staff issued its second-round comment letter on June 3, 2022, containing seven (7) comments. The reduction from eighteen first-round comments to seven second-round comments indicates that the majority of the Staff's initial concerns were resolved by the Amendment No. 1 disclosures and the May 20, 2022 response letter.

Among the seven second-round comments, one specifically followed up on the HLBV methodology:

HLBV Methodology Clarification. The Staff acknowledged the expanded disclosure in Amendment No. 1 but requested further detail on the hypothetical-liquidation waterfall mechanics. Specifically, the Staff asked:

(a) Whether the Company would consider providing a numerical illustration or example of how the HLBV allocation works in practice, to assist investors in understanding the mechanics of the methodology and the pattern of income/loss allocations over the life of the partnership; and

(b) Whether the Company considered providing a tabular reconciliation of the beginning-to-ending noncontrolling interest balance attributable to the tax-equity investor, showing contributions, distributions, and income/loss allocated under the HLBV method for each period presented.

The second-round comment letter also included additional comments regarding PPA revenue detail and non-GAAP financial measure reconciliation, which are addressed in separate memoranda prepared by the Calderwood & Harkness deal team. Those comments are referenced here to the extent that the PPA revenue recognition methodology intersects with the HLBV earnings-allocation disclosure — specifically, because the revenue recognized by the Solaris West SPV under its PPAs is a component of the SPV's net income, which is then allocated between the controlling and noncontrolling interests using the HLBV method.

D. Response in Amendment No. 2 (Filed June 10, 2022)

The response letter dated June 10, 2022, prepared by Calderwood & Harkness LLP on behalf of CBR, included the following responsive disclosures addressing the HLBV follow-up comment:

Narrative Illustration of HLBV Waterfall Mechanics. The response letter included a narrative illustration of the hypothetical-liquidation waterfall, using a generic percentage-based example rather than proprietary dollar amounts from the actual Solaris West arrangement. The illustration walks through the following steps:

(i) Determination of the SPV's net assets at book value at the beginning and end of the period;

(ii) Application of the liquidation waterfall to allocate the hypothetical liquidation proceeds to each partner based on capital-account balances;

(iii) Calculation of the change in each partner's hypothetical claim;

(iv) Adjustment for actual contributions and distributions; and

(v) Determination of each partner's share of income or loss for the period.

The narrative illustration was prepared in consultation with A&P and KMA to ensure technical accuracy and consistency with the HLBV model. The use of generic percentages (rather than actual dollar amounts) was determined to be appropriate to avoid disclosure of commercially sensitive terms of the partnership agreement while still providing investors with a meaningful understanding of the methodology. The response letter noted that the generic illustration is consistent with the approach taken by comparable issuers in the renewable-energy sector.

Tabular Rollforward of Noncontrolling Interest Balance. An enhanced footnote was added to the consolidated financial statements providing a tabular rollforward of the noncontrolling interest balance attributable to Veltara Basin for FY 2020 and FY 2021. The rollforward presents the following line items for each period:

• Beginning balance

• Contributions

• Distributions

• Income (loss) allocated per HLBV

• Ending balance

This rollforward enables investors to track the change in Veltara Basin's economic interest in the partnership from period to period and to understand the magnitude and direction of the HLBV income/loss allocations.

Revised MD&A Cross-Reference. The MD&A section was updated to include a cross-reference to the new footnote, directing investors to the tabular rollforward for a detailed reconciliation of the noncontrolling interest balance.

SEC Oral Clearance. On June 14, 2022, the SEC Staff provided oral indication that the registration statement would be cleared for effectiveness, subject to the filing of the pricing amendment. This oral clearance suggests that the Staff's HLBV-related concerns were fully resolved by the Amendment No. 2 disclosures and the June 10, 2022 response letter.

VIII. Assessment of Current S-1 Disclosure Adequacy

A. MD&A — Critical Accounting Policies

The current draft of the registration statement (Amendment No. 2, clean version, filed June 10, 2022) includes a dedicated subsection on the HLBV methodology within the critical-accounting-policies discussion in MD&A. The subsection addresses the following elements:

• A description of the HLBV methodology, including the hypothetical-liquidation concept and the role of the partnership agreement's waterfall provisions;

• Identification of the Solaris West tax-equity arrangement with Veltara Basin Financial LLC, including the $280,000,000 investment amount;

• The key assumptions underlying the HLBV calculation: the useful life of the solar PV assets, the expected flip date (2028), and the target after-tax IRR;

• A qualitative sensitivity discussion, indicating that changes in the key assumptions could materially affect the allocation of income or loss and the net income attributable to CBR's common stockholders; and

• Cross-references to the relevant financial-statement footnotes.

Assessment. The current MD&A disclosure is adequate for the purposes of the initial public offering, as evidenced by the SEC Staff's oral clearance indicated on June 14, 2022. However, for any future reactivation of the offering, we recommend enhancing the sensitivity discussion to include quantitative sensitivity analysis — for example, a disclosure indicating the estimated impact on the HLBV income/loss allocation of a one-year delay in the expected flip date, a change in the useful-life assumption, or a hypothetical ITC recapture event. Such quantitative sensitivity disclosures are increasingly common among comparable renewable-energy issuers and would strengthen the Company's disclosure posture in the event of further SEC Staff review.

B. Financial Statement Footnotes

The consolidated financial statements included in the registration statement contain the following HLBV-related footnote disclosures:

Note [X] — Tax-Equity Partnership and HLBV Methodology. This footnote discloses: (i) the nature and terms of the Solaris West tax-equity arrangement; (ii) a description of the HLBV methodology; (iii) the key assumptions and judgments involved in the HLBV calculation; and (iv) the tabular rollforward of the noncontrolling interest balance attributable to Veltara Basin for FY 2020 and FY 2021, as added in Amendment No. 2 in response to the second-round comment letter.

Note [Y] — Consolidation and Variable Interest Entities. This footnote discloses: (i) the Company's accounting policy for consolidation of variable interest entities; (ii) the basis for consolidation of the Solaris West SPV, including the determination that CBR is the primary beneficiary; and (iii) the carrying amounts of the assets and liabilities of the VIE included in the consolidated balance sheet.

Assessment. The footnote disclosures are consistent with A&P's audit approach and with the SEC Staff's expectations as of the date of oral clearance. The tabular rollforward added in Amendment No. 2 represents a meaningful enhancement that directly addresses the Staff's second-round request and provides investors with transparency into the noncontrolling interest allocation. No further enhancements are recommended at this time, although the footnotes will need to be updated for any additional reporting periods included in a reactivated registration statement.

C. Risk Factors

The risk-factor section of the registration statement includes the following HLBV-related disclosures:

(i) Complexity of HLBV Accounting and Earnings Volatility. The registration statement includes a risk factor disclosing that the Company uses the HLBV methodology to allocate income and loss in its tax-equity partnership, that the methodology involves significant estimates and judgments, and that the resulting allocations can create volatility in the Company's reported earnings that may not correspond to the operating performance of the underlying solar assets.

(ii) Dependence on Tax-Equity Financing. A risk factor discloses the Company's dependence on tax-equity financing for its current and future projects, the limited number of tax-equity investors in the market, and the risk that the Company may not be able to obtain tax-equity financing on favorable terms — or at all — for future projects.

(iii) ITC Recapture Risk. A risk factor addresses the possibility that certain events — including dispositions of the solar PV assets, cessation of use as qualifying property, or changes in ownership structure — could trigger recapture of the ITCs, with potential material adverse effects on the Company's financial condition and results of operations and on the Company's relationship with Veltara Basin.

(iv) Changes to Tax Credit Programs. A risk factor addresses the risk that changes to federal or state tax credit programs — including potential repeal, reduction, or modification of the ITC or the production tax credit ("PTC") — could affect the economics of partnership-flip structures and the Company's ability to attract tax-equity financing for future projects.

Assessment. The risk-factor disclosures are adequate and appropriately capture the material risks associated with the HLBV methodology and the tax-equity structure. The language in the risk factors aligns with the "material adverse effect" definition contained in the underwriting agreement for the proposed offering, including the carve-out for changes in GAAP or applicable law that would affect the Company and its competitors generally. No further enhancements are recommended at this time.

D. Recommendations for Reactivation

As of June 17, 2022, the IPO is in a dormant status, and no further filing activity is planned pending a decision by the Company's board of directors and the underwriters to reactivate the offering. If the offering is reactivated, the following HLBV-related updates will be required:

1. Updated HLBV Calculations. The HLBV calculations will need to be updated for any additional reporting periods included in the reactivated registration statement, including FY 2022 (if annual audited financial statements are required) and any quarterly interim periods. CBR's management team (Marcus Yoon, CFO; Priya Anand, VP Accounting and Tax) will need to prepare updated HLBV models for these periods, subject to review by A&P and the Calderwood & Harkness deal team.

2. Refreshed Sensitivity Analysis. The qualitative sensitivity discussion in MD&A should be refreshed to reflect any changes in flip-date expectations, useful-life estimates, or other key assumptions since the last filing. As noted above, we recommend that the sensitivity discussion be enhanced with quantitative analysis at the time of reactivation.

3. Confirmation of Methodology Consistency. Coordination with A&P will be required to confirm that any updated financial statements reflect the same HLBV methodology applied in prior periods, without changes in methodology or key assumptions that would require disclosure under ASC 250 (Accounting Changes and Error Corrections) or that could raise comparability concerns.

4. Assessment of New Tax-Equity Arrangements. The Company should assess whether any new tax-equity arrangements have been entered into for the projects currently under construction — specifically, Mesquite Wind (420 MW, Oldham County, Texas, expected COD Q3 2022) and Cimarron Solar (350 MW, Doña Ana Co

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT This memorandum has been prepared by Calderwood & Harkness LLP at the request of Calloway-Briggs Renewables Inc. and is protected by the attorney-client privilege and the work-product doctrine. This memorandum and its contents should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP and Calloway-Briggs Renewables Inc. Disclosure to third parties may constitute a waiver of applicable privileges.
CALDERWOOD & HARKNESS LLP
MEMORANDUM
TO: Jennifer Kwon, Responsible Partner, Capital Markets, Calderwood & Harkness LLP
FROM: Leonard Cross, Specialist Partner, Tax Natasha Forbes, Working Associate, Capital Markets
DATE: May 30, 2022
RE: Calloway-Briggs Renewables Inc. — Review of Hypothetical-Liquidation-at-Book-Value (HLBV) Methodology for Tax-Equity Partnership Accounting; Adequacy of S-1 Disclosures; Response to SEC Comment Letter Concerns
C&H Matter No.: 1015-00001
CC: Brendan Walsh, Lead Associate, Capital Markets Theodore Langston, Billing Partner, Capital Markets
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I. Executive Summary and Purpose
This memorandum reviews the Hypothetical-Liquidation-at-Book-Value ("HLBV") methodology applied by Calloway-Briggs Renewables Inc. ("CBR" or the "Company") to account for its tax-equity partnership structures, principally the Solaris West tax-equity partnership entered into with Veltara Basin Financial LLC ("Veltara Basin"). The Solaris West arrangement is the Company's sole existing partnership-flip tax-equity structure and involves a $280,000,000 tax-equity investment by Veltara Basin in a 450 MW utility-scale solar photovoltaic project located in Pecos County, Texas. Given the materiality of this arrangement to the Company's consolidated financial statements and its prominence in the draft registration statement on Form S-1, a thorough review of the HLBV methodology and related disclosures is warranted as part of the Calderwood & Harkness deal team's due diligence and disclosure review process.
The purposes of this memorandum are fourfold:
1. Evaluate the appropriateness of the HLBV methodology as applied to CBR's tax-equity arrangements. We assess whether the Company's application of the HLBV method is consistent with the relevant authoritative accounting guidance — principally ASC 323 (Investments — Equity Method and Joint Ventures), ASC 740 (Income Taxes), and ASC 810 (Consolidation) — as well as prevailing industry practice among publicly traded renewable-energy companies with comparable partnership-flip structures.
2. Assess the adequacy of HLBV-related disclosures in the draft registration statement. The Company filed a draft registration statement on Form S-1 (SEC CIK 0001948372), which has since been amended twice. We evaluate the HLBV-related disclosures in the Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), the financial-statement footnotes, and the risk factors across all versions of the filing, with particular focus on the most recent iteration — Amendment No. 2 (filed June 10, 2022; EDGAR Accession No. 0001948372-22-000003).
3. Address specific SEC comment letter concerns. The SEC Division of Corporation Finance issued a first-round comment letter on May 6, 2022, containing eighteen (18) comments, and a second-round comment letter on June 3, 2022, containing seven (7) comments. Several of these comments included targeted questions regarding the Company's HLBV methodology, the basis for consolidation of the Solaris West SPV, and the adequacy of related disclosures. We analyze these comments and the Company's responses in detail.
4. Coordinate with the Company's independent auditor and external tax advisor. We discuss the alignment of the accounting treatment, tax analysis, and disclosure language among Calderwood & Harkness LLP, Ashford & Pemberton LLP (the Company's independent auditor; lead engagement partner Gregory Sondheim, CPA; audit manager Irene Valdez, CPA), and Kessler McBride & Associates LLP ("KMA"; external tax advisor; Alan Kessler, Managing Partner; Linda McBride, Partner, Tax Structures).
Summary Conclusion. Based on our review, we conclude that the HLBV methodology as applied by CBR is consistent with ASC 323 and ASC 740 guidance and with industry practice for utility-scale renewable energy companies employing partnership-flip tax-equity structures. The S-1 disclosures as revised in Amendment No. 2 (filed June 10, 2022; EDGAR Accession No. 0001948372-22-000003) are adequate to address the SEC Staff's HLBV-related comments, as evidenced by the oral clearance indicated on June 14, 2022, subject to the pricing amendment. However, we recommend certain refinements — most notably the addition of quantitative sensitivity analysis — for any future reactivation of the offering. These recommendations, together with open action items and monitoring obligations during the dormancy period, are detailed in Section X below.
II. Background
A. CBR's Tax-Equity Partnership Structure — Solaris West
The Solaris West solar energy project is the centerpiece of the HLBV analysis and the primary focus of the SEC Staff's comment letter inquiries. We summarize the key structural parameters below.
Project Entity. The project is held through Solaris West Solar LLC, a Texas limited liability company organized as the special-purpose vehicle ("SPV") for the solar project. Solaris West Solar LLC is 100% owned by Calloway-Briggs Operating Company LLC, which is in turn 100% owned by CBR Holdings LLC, an intermediate holding company that is itself 100% owned by CBR. This chain of ownership is relevant both to the consolidation analysis under ASC 810 (discussed in Section IV below) and to the SEC Staff's inquiry regarding the basis for consolidation versus equity-method treatment.
Technology and Capacity. Solaris West is a utility-scale solar photovoltaic installation with a nameplate generating capacity of 450 megawatts (MW). The project utilizes single-axis tracking technology and is situated on approximately 4,200 acres of leased land in Pecos County, Texas. The project sells substantially all of its output pursuant to long-term power purchase agreements ("PPAs") with investment-grade offtakers, the details of which are disclosed in the S-1 and addressed in a separate PPA revenue disclosure memorandum.
Commercial Operation Date. The project achieved commercial operation in the third quarter of 2020 ("COD"), at which point the tax-equity investor's economic participation became fully effective under the partnership agreement.
Tax-Equity Investor. Veltara Basin Financial LLC is a Delaware limited liability company with its principal office at 2029 Century Park East, Suite 1500, Los Angeles, California 90067. The primary contact for the tax-equity arrangement is Karen Fujimoto, Partner, Tax Equity Investments. Veltara Basin is an established participant in the renewable-energy tax-equity market and maintains a portfolio of similar investments across solar, wind, and battery-storage asset classes.
Investment Amount. Veltara Basin committed and funded a tax-equity investment of $280,000,000 in connection with the Solaris West project. This investment was made in exchange for (i) an allocation of Investment Tax Credits ("ITCs") generated by the solar PV assets, (ii) an allocation of accelerated depreciation deductions (including bonus depreciation under Section 168(k) of the Internal Revenue Code), and (iii) specified cash distributions during the pre-flip period, all as set forth in the Solaris West partnership agreement.
Structure — Partnership Flip. The arrangement is structured as a "partnership flip," the predominant tax-equity financing structure in the U.S. renewable-energy sector. Under this structure, the allocation of tax benefits and economic returns between CBR (as managing member/sponsor) and Veltara Basin (as tax-equity investor) shifts — or "flips" — upon the achievement by Veltara Basin of its targeted after-tax internal rate of return ("IRR"). During the pre-flip period, Veltara Basin receives the substantial majority of tax benefits and a specified share of cash distributions. Following the flip, economic interests revert to CBR, with Veltara Basin retaining a nominal residual interest.
Expected Flip Date. The flip is expected to occur in 2028, based on current projections of project performance, tax benefit utilization, and cash distributions. The timing of the flip is sensitive to several variables, including the project's energy production, operating costs, and any changes in applicable tax law. Sensitivity of the flip date to changes in assumptions is discussed in Section IV.C below.
Tax Credits. Veltara Basin is the primary recipient of ITCs under Section 48 of the Internal Revenue Code, which are allocated in accordance with the partnership agreement. The ITCs were generated upon the placement in service of the solar PV assets and have been substantially claimed by Veltara Basin on its federal income tax returns.
ITC Recapture Risk. The risk that the proposed IPO or related corporate restructuring transactions could trigger recapture of the ITCs under Section 50(a) of the Internal Revenue Code has been analyzed in a separate Tax-Equity Structure Memorandum prepared by this firm in coordination with Kessler McBride & Associates LLP. That analysis concluded that no recapture event is triggered by the proposed IPO. We do not repeat that analysis here, but note that the ITC recapture risk is relevant to the HLBV calculation to the extent that a hypothetical recapture event could affect the liquidation waterfall and capital-account balances used in the HLBV model.
B. Other Tax-Equity Considerations Across the Portfolio
While Solaris West is the only project currently subject to a tax-equity partnership-flip arrangement, the broader context of CBR's portfolio is relevant to the disclosure analysis and the SEC Staff's forward-looking inquiries.
CBR operates a 3.8 GW portfolio of utility-scale renewable energy assets across twenty-two (22) projects located in Texas, New Mexico, Arizona, California, and Oklahoma. In addition, the Company has 1.4 GW of generation capacity under active construction, comprising:
• Mesquite Wind — a 420 MW wind energy project in Oldham County, Texas, with an expected COD in Q3 2022; and
• Cimarron Solar — a 350 MW solar PV project in Doña Ana County, New Mexico, with an expected COD in Q1 2023.
Beyond the construction-stage projects, CBR maintains a development pipeline of approximately 6.2 GW of additional projects in various stages of development. The Company's management has indicated — both in discussions with Calderwood & Harkness and in forward-looking disclosures in the S-1 — that future projects, including those in the development pipeline, may utilize partnership-flip tax-equity structures similar to the Solaris West arrangement. To the extent that such structures are entered into, additional HLBV analysis and disclosure will be required.
We note that certain other aspects of the IPO transaction — including the 2022 Omnibus Equity Incentive Plan (with a reserve of 12,727,273 shares of common stock) and the broader corporate restructuring actions undertaken in connection with the offering — do not affect the HLBV analysis. The HLBV methodology operates at the partnership level (i.e., within the Solaris West SPV) and is not directly implicated by changes in CBR's corporate-level equity structure or incentive compensation arrangements.
C. Relevant Financial Data
The following financial data provide context for the materiality of the Solaris West tax-equity arrangement to CBR's consolidated financial statements:
Annual Operating Results (Audited by Ashford & Pemberton LLP):
Balance Sheet (as of December 31, 2021):
Interim Results (Unaudited):
The Solaris West tax-equity investment of $280,000,000 represents a material component of CBR's balance sheet. The noncontrolling interest attributable to Veltara Basin — as calculated under the HLBV methodology — affects the allocation of income and loss between the Company and Veltara Basin as reflected in CBR's consolidated financial statements for FY 2020, FY 2021, and the Q1 2022 interim period. Changes in the HLBV allocation can have a meaningful impact on the net income attributable to CBR's common stockholders, which is a key metric for investors evaluating the offering.
III. Overview of the HLBV Methodology
A. Conceptual Framework
The Hypothetical-Liquidation-at-Book-Value method is an equity method of accounting used to allocate income or loss among partners in a partnership where the partners' economic interests differ from their stated profit-and-loss sharing ratios. This divergence between economic interests and stated sharing ratios is a defining characteristic of renewable-energy partnership-flip tax-equity structures, where the tax-equity investor's return is primarily derived from tax benefits (ITCs and depreciation deductions) rather than from cash distributions or stated profit allocations.
Under the HLBV method, at each reporting date, the partnership's net assets are hypothetically liquidated at their GAAP book value — that is, at the carrying amounts reflected on the partnership's balance sheet prepared in accordance with U.S. generally accepted accounting principles. The resulting hypothetical liquidation proceeds are then distributed to each partner in accordance with the liquidation waterfall provisions set forth in the partnership agreement. This waterfall typically specifies the order of priority for the return of capital contributions, the distribution of any preferred return, and the allocation of residual proceeds.
The change in each partner's hypothetical claim on the partnership's net assets from one reporting date to the next — after adjusting for any actual contributions made by, and distributions paid to, such partner during the period — determines that partner's share of the partnership's income or loss for the reporting period. In algebraic terms:
Partner's share of income (loss) = Ending HLBV claim − Beginning HLBV claim − Contributions + Distributions
This approach ensures that the income or loss allocation reflects the economic substance of the partnership arrangement — specifically, the shifting of value between partners that occurs as the tax-equity investor receives its targeted return and the flip date approaches — rather than merely reflecting the stated profit-and-loss sharing percentages, which may bear little relationship to the economic outcomes.
The HLBV method is widely accepted under U.S. GAAP and is the predominant approach used in the renewable-energy industry for allocating earnings in partnerships where the partnership agreement contains complex allocation provisions, including flip structures, preferred returns, and capital-account-based waterfalls. As discussed further in Section IX below, a review of recent public filings by comparable renewable-energy issuers confirms that HLBV is the standard methodology for this purpose.
B. Authoritative Guidance
The application of the HLBV methodology is supported by the following principal sources of authoritative and interpretive guidance:
ASC 323-10-35 (Equity Method — Subsequent Measurement). ASC 323 governs the equity method of accounting for investments in partnerships and other entities where the investor has the ability to exercise significant influence. ASC 323-10-35-26 through 35-28 address the allocation of earnings in partnerships where the investor's economic interest differs from its stated profit-and-loss sharing ratio. The guidance contemplates the use of a hypothetical-liquidation approach when the partnership agreement's distribution provisions would result in materially different allocations upon liquidation than would be indicated by the stated sharing ratios. This is precisely the circumstance presented by a partnership-flip tax-equity structure, where the pre-flip and post-flip allocation percentages differ dramatically.
ASC 740 (Income Taxes). ASC 740 governs the accounting for income taxes, including the recognition and measurement of deferred tax assets and liabilities. The HLBV analysis intersects with ASC 740 in several respects. First, the tax components of the partnership allocations — including the allocation of ITCs and depreciation deductions — are a primary driver of the economics of the tax-equity arrangement and directly affect the capital-account balances used in the hypothetical-liquidation calculation. Second, the deferred tax liability arising from book-tax basis differences in the Solaris West solar PV assets must be properly reflected in the HLBV model to ensure that the hypothetical-liquidation distribution is consistent with the economic substance of the arrangement. Coordination with Kessler McBride & Associates LLP on these tax-related inputs is discussed in Section VI below.
ASC 810 (Consolidation). ASC 810 governs the consolidation of variable interest entities ("VIEs") and the determination of the primary beneficiary. In CBR's case, the Solaris West SPV is consolidated by CBR rather than accounted for under the equity method, because CBR is the managing member, retains all voting interests, and is the primary beneficiary under the VIE analysis set forth in ASC 810-10. The HLBV method is applied in this context not to determine CBR's share of the SPV's earnings (since the SPV is fully consolidated), but rather to allocate the earnings between the controlling interest (CBR) and the noncontrolling interest (Veltara Basin). This distinction was the subject of an SEC Staff comment, addressed in Section VII below.
AICPA Accounting and Valuation Guide. The AICPA's Accounting and Valuation Guide: Valuation of Portfolio Company Investments of Venture Capital and Private Equity Funds and Other Investment Companies provides analogous guidance on the allocation of value among holders of different classes of equity with differing economic rights. While this guide is directed primarily at investment companies, its framework for analyzing complex equity-method allocations — including the use of hypothetical-liquidation approaches — is instructive by analogy in the tax-equity partnership context.
Industry Practice Guidance. The major accounting firms have published extensive practice guidance regarding the application of the HLBV methodology to renewable-energy tax-equity partnerships. While these publications are not authoritative pronouncements, they reflect a consensus of professional practice that supports the approach taken by CBR and validated by Ashford & Pemberton LLP. We have reviewed relevant portions of this guidance in connection with this memorandum but do not reproduce or quote it here due to proprietary restrictions.
C. Key Inputs to the HLBV Calculation
The HLBV calculation for the Solaris West tax-equity partnership relies on the following key inputs, each of which involves varying degrees of judgment and estimation:
1. Partnership Agreement Liquidation Waterfall. The liquidation provisions of the Solaris West partnership agreement specify the priority and order of distributions upon a hypothetical liquidation of the SPV. These provisions distinguish between the pre-flip period (during which Veltara Basin's economic interest is predominant) and the post-flip period (during which CBR's economic interest increases substantially). The waterfall includes provisions for the return of capital contributions, the allocation of any shortfall or surplus, and the treatment of accumulated and unpaid preferred returns.
2. Book Value of Solaris West SPV's Net Assets. At each reporting date, the GAAP carrying amounts of all assets and liabilities of the Solaris West SPV are determined, yielding the net asset value available for hypothetical distribution. The most significant component of the SPV's assets is the solar PV plant and associated equipment, which is carried at historical cost less accumulated depreciation.
3. Capital Contributions by Each Partner. CBR contributed its sponsor equity to the partnership, and Veltara Basin contributed $280,000,000 in tax-equity capital. These contributions establish the initial capital-account balances from which the HLBV calculation proceeds.
4. Distributions Made to Each Partner During the Period. Actual cash distributions made by the SPV to CBR and Veltara Basin during each reporting period are netted against the HLBV allocation to determine each partner's share of income or loss.
5. Tax Credit and Tax Benefit Allocations. The ITCs allocated to Veltara Basin, together with the accelerated depreciation deductions, are reflected in the capital-account balances and directly affect the hypothetical-liquidation distribution. These allocations are among the most significant drivers of the HLBV income/loss pattern.
6. Depreciation and Amortization Schedules. The useful-life assumptions applied to the solar PV assets determine the rate at which the book value of those assets declines over time, which in turn affects the hypothetical liquidation proceeds available for distribution at each reporting date.
7. Expected Flip Date and Conditions Precedent. The expected 2028 flip date, and the conditions that must be satisfied for the flip to occur (principally, Veltara Basin's achievement of its target after-tax IRR), are embedded in the HLBV model. Changes in the expected flip date — whether due to changes in project performance, tax-law changes, or other factors — can have a material effect on the pattern of income/loss allocations between periods.
IV. Application of HLBV to the Solaris West Tax-Equity Partnership
A. Partnership Agreement Structure
The Solaris West Solar LLC partnership agreement establishes a two-member structure with the following key features:
Members. CBR, acting through its wholly owned subsidiary Calloway-Briggs Operating Company LLC, serves as the managing member and sponsor. Veltara Basin Financial LLC participates as the tax-equity investor and a non-managing member.
Pre-Flip Allocations. During the pre-flip period (from COD through the expected flip date in 2028), the partnership agreement provides that Veltara Basin receives approximately 99% of all tax benefits generated by the partnership, including ITCs and accelerated depreciation deductions. CBR receives the remaining approximately 1% of tax benefits. Cash distributions during the pre-flip period are allocated to Veltara Basin at a specified percentage that is substantially lower than the tax-benefit allocation percentage, reflecting the fact that Veltara Basin's return is primarily tax-driven rather than cash-driven. CBR receives the residual cash flow.
Post-Flip Allocations. Following the flip (expected 2028), the allocation percentages revert, with CBR receiving approximately 95% of all economics — including both tax allocations and cash distributions — and Veltara Basin retaining approximately 5%. This reversion is the defining structural feature of the partnership-flip arrangement and is the reason that the HLBV methodology, rather than a simple pro-rata allocation based on stated percentages, is necessary to capture the economic substance of the arrangement.
Flip Trigger. The flip is triggered upon Veltara Basin's achievement of its target after-tax internal rate of return, as calculated in accordance with the methodology specified in the partnership agreement. The target IRR reflects the market rate for comparable tax-equity investments at the time the arrangement was negotiated. The determination of whether the target IRR has been achieved is based on cumulative tax benefits received, cash distributions, and the time value of money.
Liquidation Waterfall. Upon a hypothetical liquidation of the partnership (or an actual liquidation), the proceeds are distributed in the following order of priority:
(a) First, to each partner in proportion to and to the extent of each partner's positive adjusted capital account balance (as determined under the partnership agreement's capital-account maintenance provisions, which are intended to comply with the requirements of Treasury Regulations Section 1.704-1(b)(2)(iv));
(b) Second, any remaining proceeds are distributed to the partners in accordance with their respective post-flip economic percentages (i.e., approximately 95% to CBR and approximately 5% to Veltara Basin).
This waterfall governs the hypothetical distribution at each reporting date under the HLBV method and is the mechanism through which the shifting economics of the partnership are translated into period-by-period income/loss allocations.
B. HLBV Calculation Mechanics as Applied by CBR
CBR applies the HLBV methodology at each reporting date — quarterly for interim financial reporting and annually for audited financial statements — to determine the allocation of income or loss between the controlling interest (CBR) and the noncontrolling interest (Veltara Basin) within the consolidated Solaris West SPV.
The calculation proceeds in the following steps:
Step 1: Determine the GAAP book value of the Solaris West SPV's net assets. At each reporting date, CBR prepares a balance sheet for the Solaris West SPV reflecting the GAAP carrying amounts of all assets (principally the solar PV plant, land-use rights, and working capital) and all liabilities (principally project-level debt, accounts payable, and accrued expenses). The difference between total assets and total liabilities yields the net assets available for hypothetical distribution.
Step 2: Apply the liquidation waterfall to determine each partner's hypothetical claim. The net assets determined in Step 1 are hypothetically distributed to CBR and Veltara Basin in accordance with the liquidation waterfall described in Section IV.A above. This requires a determination of each partner's adjusted capital-account balance as of the reporting date, reflecting cumulative contributions, distributions, income/loss allocations, and tax-benefit allocations.
Step 3: Compare each partner's hypothetical claim to the prior period. The change in each partner's hypothetical claim on the SPV's net assets from the beginning of the period to the end of the period is calculated.
Step 4: Adjust for actual contributions and distributions. Any actual contributions made by, and distributions paid to, each partner during the period are netted against the change in hypothetical claim.
Step 5: Determine each partner's share of income or loss. The resulting amount — the change in hypothetical claim, adjusted for contributions and distributions — represents that partner's share of the partnership's income or loss for the period.
Because the ITC and accelerated depreciation reduce Veltara Basin's capital account (reflecting the tax benefits received and the corresponding reduction in the economic value that Veltara Basin would receive upon a hypothetical liquidation), the HLBV method results in a pattern of income/loss allocation that may differ significantly from the stated pre-flip allocation percentages. In particular, during the early years of the partnership — when the tax benefits are most heavily weighted toward Veltara Basin and the solar PV assets are being rapidly depreciated — the HLBV method may allocate a disproportionate share of "income" (or a reduced share of "loss") to CBR, reflecting the fact that CBR's residual economic claim on the partnership's net assets is increasing as Veltara Basin's capital account is depleted by the tax allocations.
CBR's consolidated financial statements reflect the net effect of this calculation. The Solaris West SPV is fully consolidated in CBR's financial statements, with the portion of the SPV's net assets and net income attributable to Veltara Basin reported as a noncontrolling interest. The HLBV methodology determines the amount of net income (or net loss) allocated to this noncontrolling interest in each period, with the residual allocated to CBR.
C. Key Assumptions and Judgments
The HLBV calculation involves several areas of significant judgment and estimation, each of which can materially affect the allocation of income or loss between the partners. We highlight the following key assumptions:
Book Value of Solar PV Assets. The GAAP carrying value of the Solaris West solar PV assets is the largest component of the SPV's net assets and is therefore the primary driver of the hypothetical liquidation proceeds. The carrying value is determined based on the historical cost of the assets (including capitalized construction costs, equipment costs, and development costs) less accumulated depreciation. The useful-life assumption applied to the solar PV assets — currently estimated at 30 years for the modules and 25 years for the balance-of-system components — directly affects the rate of depreciation and, consequently, the trajectory of the HLBV allocations over the life of the partnership. A shorter useful life would accelerate depreciation, reduce book value more rapidly, and alter the timing of the HLBV income/loss allocations.
Timing and Certainty of the Flip. The expected 2028 flip date is a critical input to the HLBV model, as it determines the point at which the allocation percentages shift from pre-flip to post-flip levels. The flip date is sensitive to project performance (energy production, capacity factor, curtailment), operating costs, the tax-equity investor's utilization of tax benefits, and any changes in applicable tax law. A delay in the flip date would extend the period during which Veltara Basin receives the substantial majority of tax benefits, potentially reducing the income allocated to CBR in the interim periods and increasing it in later periods. Conversely, an acceleration of the flip date would have the opposite effect. The HLBV model incorporates management's best estimate of the flip date, which is reviewed and updated at each reporting date.
Treatment of ITC Recapture Risk. In the HLBV hypothetical-liquidation scenario, the question arises whether the hypothetical liquidation itself would trigger ITC recapture under Section 50(a) of the Internal Revenue Code (which generally imposes recapture if the solar PV assets are disposed of or cease to be used as Section 48 property within five years of being placed in service). Because the Solaris West project achieved COD in Q3 2020, the five-year recapture period will not expire until Q3 2025. The treatment of this recapture risk in the hypothetical-liquidation scenario requires judgment: if the recapture is assumed to occur in the hypothetical liquidation, it would reduce Veltara Basin's capital account (because the recapture obligation would be allocated to Veltara Basin) and thereby affect the HLBV allocation. CBR's HLBV model reflects a probability-weighted assessment of this risk, consistent with A&P's audit approach.
discount Rate / Target IRR. The target after-tax IRR embedded in the partnership agreement determines when the flip occurs and, by extension, the trajectory of the HLBV allocations. While the specific target IRR is commercially sensitive and is not disclosed in the S-1, it is an input to the HLBV model's projection of the flip date. Changes in market conditions that could affect the comparability of the target IRR to current market rates are monitored but do not directly alter the contractual target.
Recognition of HLBV "Income" in Early Years. A conceptual question inherent in the HLBV methodology is whether the "income" allocated to CBR in the early years of the partnership — which largely reflects the shifting of future economic value from the tax-equity investor to the sponsor as the tax benefits are consumed — should be recognized in the period in which the shift occurs or deferred to future periods. Under the HLBV methodology as described in ASC 323 and as consistently applied in industry practice, such income is recognized in the period in which the change in hypothetical-liquidation claim occurs, without deferral. CBR applies this treatment, and A&P has confirmed its appropriateness in the context of the FY 2020 and FY 2021 audits.
V. Coordination with Ashford & Pemberton LLP (Independent Auditor)
A. Audit Approach
Gregory Sondheim, CPA (lead engagement partner) and Irene Valdez, CPA (audit manager) at Ashford & Pemberton LLP ("A&P") have served as CBR's independent auditor for the fiscal years ended December 31, 2019, 2020, and 2021. In connection with the proposed IPO, A&P has also performed agreed-upon procedures with respect to the Q1 2022 interim financial data (unaudited), which is included in the registration statement.
A&P confirmed, both in their audit workpapers (relevant sections of which were provided to Calderwood & Harkness on a limited, privileged basis for purposes of the S-1 review) and in direct discussions with the Calderwood & Harkness deal team, that they reviewed the HLBV calculations for the Solaris West tax-equity partnership as a key audit matter in the FY 2020 and FY 2021 audits. The HLBV review was included in A&P's audit plan as a significant risk area due to the materiality of the tax-equity arrangement and the complexity of the allocation methodology.
A&P's audit procedures included, among other things: (i) obtaining and reviewing the Solaris West partnership agreement, with particular focus on the liquidation waterfall and allocation provisions; (ii) testing the mathematical accuracy of CBR's HLBV model; (iii) evaluating the reasonableness of the key assumptions described in Section IV.C above; (iv) independently recalculating the hypothetical-liquidation distribution for selected reporting dates; (v) assessing the consistency of the HLBV methodology with ASC 323 and industry practice; and (vi) reviewing the financial-statement disclosures related to the HLBV methodology and the noncontrolling interest.
A&P concluded that CBR's application of the HLBV methodology is consistent with ASC 323 and is appropriate for the partnership-flip structure. A&P's unqualified audit opinion on CBR's consolidated financial statements for FY 2019, FY 2020, and FY 2021 encompasses the HLBV-related financial-statement line items, including the noncontrolling interest balance and the allocation of net income between the controlling and noncontrolling interests.
A&P's draft comfort letter (dated June 8, 2022) covers the audited financial statements and the Q1 2022 interim financial data. The HLBV methodology and the noncontrolling interest balance were within the scope of the comfort-letter procedures. Three circle-up procedures are planned for the comfort letter: an initial comfort letter at the time of effectiveness, a bring-down letter prior to closing, and a letter at pricing. As of the date of this memorandum, the initial draft has been received and is under review.
B. A&P's Key Observations
In the course of their audit work and in discussions with the Calderwood & Harkness deal team, A&P made the following observations regarding the HLBV methodology as applied by CBR:
Earnings Volatility. A&P noted that the HLBV methodology results in non-cash income/loss allocations that can create volatility in CBR's reported earnings, particularly as the Solaris West assets depreciate and the expected flip date approaches. This volatility arises because the HLBV allocation is sensitive to changes in the book value of the SPV's net assets (which decline as depreciation accumulates) and to changes in the capital-account balances of the partners (which shift as tax benefits are allocated and distributions are made). A&P observed that this volatility is inherent in the HLBV methodology and is not indicative of an error in its application, but recommended that the Company provide enhanced disclosure to help investors understand the source and expected pattern of the volatility.
Enhanced Footnote Disclosure. A&P recommended that the financial-statement footnotes include enhanced disclosure regarding the sensitivity of the HLBV allocations to changes in key assumptions, specifically: (i) the useful life of the solar PV assets; (ii) the expected flip date; and (iii) the treatment of ITC recapture risk. A&P noted that such disclosure is consistent with the trend in SEC Staff expectations for renewable-energy companies with material tax-equity arrangements.
Incorporation of Recommendations. A&P's recommendations were discussed among the Company's management team (Marcus Yoon, Chief Financial Officer; Priya Anand, Vice President, Accounting and Tax), Calderwood & Harkness, and A&P during a joint working session held on May 14, 2022. The recommended enhancements were incorporated into the revised critical-accounting-policies discussion in the MD&A section of Amendment No. 1 (filed May 20, 2022; EDGAR Accession No. 0001948372-22-000002) and were further refined in Amendment No. 2.
VI. Coordination with Kessler McBride & Associates LLP (Tax Advisor)
A. Tax Structuring Input
Alan Kessler, Managing Partner, and Linda McBride, Partner, Tax Structures, at Kessler McBride & Associates LLP ("KMA") serve as CBR's external tax advisor for the IPO and have deep institutional familiarity with the Solaris West tax-equity structure, having advised on its initial structuring and documentation in 2019–2020.
KMA has confirmed, in written memoranda and in discussions with the Calderwood & Harkness deal team, the following critical points:
Safe Harbor Compliance. The partnership-flip structure complies with the safe harbor established under Revenue Procedure 2007-65, which provides a framework for the IRS's acceptance of partnership allocations in wind-energy transactions and which has been applied by analogy (and subsequently confirmed through subsequent IRS guidance) to solar-energy transactions. KMA's analysis addresses the specific requirements of the safe harbor, including the minimum investor-at-risk threshold, the reasonable-expected-value-of-tax-benefits limitation, and the bona-fide-equity-investment standard.
No ITC Recapture from IPO. KMA has confirmed that the proposed IPO does not constitute a "disqualifying event" that would trigger ITC recapture under Section 50(a) of the Internal Revenue Code. The detailed analysis supporting this conclusion is set forth in the separate Tax-Equity Structure Memorandum and is not repeated here. In summary, KMA concluded that the IPO transaction — which involves a sale of newly issued shares of CBR common stock to the public — does not result in a disposition of the solar PV assets, a change in the use of the assets, or a cessation of the assets' qualification as Section 48 property.
Tax-Basis Inputs to HLBV. KMA provided detailed input on the tax-basis versus book-basis differences that affect the HLBV calculation. These differences arise principally from: (i) the accelerated depreciation deductions (including bonus depreciation) claimed for tax purposes, which reduce the tax basis of the solar PV assets more rapidly than GAAP depreciation reduces the book basis; and (ii) the ITCs, which are allocated to Veltara Basin and reduce Veltara Basin's capital account for tax purposes but may be treated differently for GAAP purposes. KMA's analysis ensures that the HLBV model correctly reflects the Section 704(b) capital-account maintenance requirements — i.e., that the capital accounts used in the hypothetical-liquidation waterfall are maintained in accordance with the Treasury Regulations governing partnership allocations, rather than on a tax-basis or a pure-GAAP-basis.
B. Alignment Between Tax and GAAP Treatment
The alignment between the tax treatment and the GAAP treatment of the Solaris West partnership allocations is critical to the integrity of the HLBV calculation. KMA's review addressed the following areas of potential divergence:
Liquidation Waterfall Consistency. KMA confirmed that the liquidation waterfall in the partnership agreement, as used in the HLBV calculation, is consistent with the Section 704(b) and Section 704(c) allocation provisions of the Internal Revenue Code and the Treasury Regulations thereunder. Section 704(b) requires that partnership allocations have "substantial economic effect," which in practice means that the allocations must be consistent with the capital-account maintenance and liquidation-in-accordance-with-capital-accounts provisions of Treasury Regulations Section 1.704-1(b)(2)(ii). The HLBV model's use of capital-account balances maintained under these provisions ensures that the GAAP allocation is grounded in the economic substance of the partnership arrangement as recognized for tax purposes.
ASC 740 Alignment. KMA reviewed the HLBV model's treatment of the deferred tax liability arising from book-tax basis differences in the Solaris West solar PV assets and confirmed that the treatment is aligned with the requirements of ASC 740. Specifically, the deferred tax liability is measured based on the temporary difference between the GAAP carrying amount and the tax basis of the assets, using the enacted tax rate expected to apply when the temporary difference reverses. This deferred tax liability is a component of the SPV's GAAP balance sheet and is included in the net assets available for hypothetical distribution under the HLBV model. KMA confirmed that the interaction between the deferred tax liability and the HLBV allocation does not give rise to any circular or self-referencing calculation that could distort the results.
ITC Pass-Through Treatment. KMA noted that the ITC "pass-through" to Veltara Basin — whereby the ITCs generated by the solar PV assets are allocated to Veltara Basin as the tax-equity investor — is properly reflected in the HLBV model as a reduction to Veltara Basin's capital account. This reduction reflects the economic reality that Veltara Basin has received a significant portion of its targeted return in the form of tax credits, which reduces the amount that Veltara Basin would be entitled to receive upon a hypothetical liquidation. The HLBV model correctly captures this dynamic by reducing Veltara Basin's hypothetical claim on the SPV's net assets as the ITCs are utilized, with the corresponding increase in CBR's hypothetical claim recognized as income to CBR under the HLBV method.
VII. SEC Comment Letter Concerns Regarding HLBV
A. First-Round Comment Letter (Received May 6, 2022 — 18 Comments Total)
The SEC Division of Corporation Finance issued its first-round comment letter on the Company's draft registration statement on Form S-1 on May 6, 2022. The letter contained eighteen (18) comments spanning a range of topics, including financial-statement presentation, MD&A disclosure, risk factors, executive compensation, and non-GAAP financial measures. Among these eighteen comments, at least two specifically addressed the HLBV methodology and related disclosures:
Comment on Critical Accounting Policies (MD&A). The Staff observed that the Company's critical-accounting-policies discussion in the MD&A section of the initial draft S-1 contained only a brief reference to the HLBV methodology and did not provide sufficient detail for an investor to understand how the methodology operates, what assumptions drive the allocation, or how sensitive the Company's reported results are to changes in those assumptions. The Staff requested that CBR expand its disclosure of the HLBV methodology to include, at a minimum:
(i) a more detailed explanation of how income and loss are allocated between CBR and its tax-equity partner under the HLBV method, including a description of the hypothetical-liquidation concept and the role of the partnership agreement's waterfall provisions;
(ii) identification of the key inputs and assumptions underlying the HLBV calculation, including the book value of the partnership's net assets, the capital-account balances, the expected flip date, and the useful-life assumptions for the solar PV assets; and
(iii) a discussion of the sensitivity of the Company's reported results to changes in these key assumptions, including a qualitative or quantitative indication of the magnitude of the potential impact.
Comment on Tax-Equity Accounting. The Staff asked CBR to clarify the basis for consolidating the Solaris West SPV — as opposed to accounting for CBR's interest in the SPV under the equity method — and to explain why the HLBV method (rather than a pro-rata or other allocation method) is the most appropriate approach for allocating earnings between the controlling and noncontrolling interests within the consolidated SPV. The Staff noted that the distinction between consolidation and equity-method accounting has implications for the presentation of revenues, expenses, assets, and liabilities in the Company's financial statements, and requested that the Company address this distinction clearly in its disclosures.
B. Response in Amendment No. 1 (Filed May 20, 2022)
In the response letter dated May 20, 2022, prepared by Calderwood & Harkness LLP on behalf of CBR, the Company provided detailed responses to both HLBV-related comments.
With respect to the critical-accounting-policies comment, the MD&A section of Amendment No. 1 was substantially expanded to include a dedicated subsection on the HLBV methodology within the critical-accounting-policies discussion. The revised disclosure includes:
(i) A description of the HLBV methodology, explaining the hypothetical-liquidation concept and the role of the partnership agreement's waterfall provisions in determining each partner's share of income or loss;
(ii) Identification of the Solaris West partnership as the material tax-equity arrangement to which the HLBV methodology is applied, including disclosure of the $280,000,000 tax-equity investment by Veltara Basin Financial LLC;
(iii) Identification of the key assumptions underlying the HLBV calculation, including the useful life of the solar PV assets, the expected flip date (2028), and the target after-tax IRR;
(iv) A qualitative sensitivity discussion explaining that changes in these key assumptions — particularly the flip date and useful-life estimates — could materially affect the allocation of income or loss between CBR and Veltara Basin and, consequently, the net income attributable to CBR's common stockholders; and
(v) Cross-references to the relevant financial-statement footnotes containing the detailed HLBV-related disclosures.
With respect to the consolidation and allocation-method comment, the response letter explained that the Solaris West SPV is consolidated by CBR because CBR is the managing member of the SPV, holds 100% of the voting interests (through its wholly owned subsidiary chain), and is the primary beneficiary under the variable-interest-entity analysis set forth in ASC 810-10. Specifically, CBR has both (a) the power to direct the activities of the SPV that most significantly impact its economic performance (through its role as managing member) and (b) the obligation to absorb losses and the right to receive benefits that could potentially be significant to the SPV. The response further explained that the HLBV method is used to allocate the earnings to the noncontrolling interest (Veltara Basin) because the partnership agreement's complex allocation provisions — including the flip structure, the differential allocation of tax benefits versus cash distributions, and the capital-account-based liquidation waterfall — make a simple pro-rata allocation method inappropriate. Under a pro-rata method, the income/loss allocation would be based on stated profit-and-loss sharing percentages that do not reflect the economic substance of the arrangement, particularly the shifting of value between the partners as the tax benefits are consumed.
C. Second-Round Comment Letter (Received June 3, 2022 — 7 Comments Total)
The SEC Staff issued its second-round comment letter on June 3, 2022, containing seven (7) comments. The reduction from eighteen first-round comments to seven second-round comments indicates that the majority of the Staff's initial concerns were resolved by the Amendment No. 1 disclosures and the May 20, 2022 response letter.
Among the seven second-round comments, one specifically followed up on the HLBV methodology:
HLBV Methodology Clarification. The Staff acknowledged the expanded disclosure in Amendment No. 1 but requested further detail on the hypothetical-liquidation waterfall mechanics. Specifically, the Staff asked:
(a) Whether the Company would consider providing a numerical illustration or example of how the HLBV allocation works in practice, to assist investors in understanding the mechanics of the methodology and the pattern of income/loss allocations over the life of the partnership; and
(b) Whether the Company considered providing a tabular reconciliation of the beginning-to-ending noncontrolling interest balance attributable to the tax-equity investor, showing contributions, distributions, and income/loss allocated under the HLBV method for each period presented.
The second-round comment letter also included additional comments regarding PPA revenue detail and non-GAAP financial measure reconciliation, which are addressed in separate memoranda prepared by the Calderwood & Harkness deal team. Those comments are referenced here to the extent that the PPA revenue recognition methodology intersects with the HLBV earnings-allocation disclosure — specifically, because the revenue recognized by the Solaris West SPV under its PPAs is a component of the SPV's net income, which is then allocated between the controlling and noncontrolling interests using the HLBV method.
D. Response in Amendment No. 2 (Filed June 10, 2022)
The response letter dated June 10, 2022, prepared by Calderwood & Harkness LLP on behalf of CBR, included the following responsive disclosures addressing the HLBV follow-up comment:
Narrative Illustration of HLBV Waterfall Mechanics. The response letter included a narrative illustration of the hypothetical-liquidation waterfall, using a generic percentage-based example rather than proprietary dollar amounts from the actual Solaris West arrangement. The illustration walks through the following steps:
(i) Determination of the SPV's net assets at book value at the beginning and end of the period;
(ii) Application of the liquidation waterfall to allocate the hypothetical liquidation proceeds to each partner based on capital-account balances;
(iii) Calculation of the change in each partner's hypothetical claim;
(iv) Adjustment for actual contributions and distributions; and
(v) Determination of each partner's share of income or loss for the period.
The narrative illustration was prepared in consultation with A&P and KMA to ensure technical accuracy and consistency with the HLBV model. The use of generic percentages (rather than actual dollar amounts) was determined to be appropriate to avoid disclosure of commercially sensitive terms of the partnership agreement while still providing investors with a meaningful understanding of the methodology. The response letter noted that the generic illustration is consistent with the approach taken by comparable issuers in the renewable-energy sector.
Tabular Rollforward of Noncontrolling Interest Balance. An enhanced footnote was added to the consolidated financial statements providing a tabular rollforward of the noncontrolling interest balance attributable to Veltara Basin for FY 2020 and FY 2021. The rollforward presents the following line items for each period:
• Beginning balance
• Contributions
• Distributions
• Income (loss) allocated per HLBV
• Ending balance
This rollforward enables investors to track the change in Veltara Basin's economic interest in the partnership from period to period and to understand the magnitude and direction of the HLBV income/loss allocations.
Revised MD&A Cross-Reference. The MD&A section was updated to include a cross-reference to the new footnote, directing investors to the tabular rollforward for a detailed reconciliation of the noncontrolling interest balance.
SEC Oral Clearance. On June 14, 2022, the SEC Staff provided oral indication that the registration statement would be cleared for effectiveness, subject to the filing of the pricing amendment. This oral clearance suggests that the Staff's HLBV-related concerns were fully resolved by the Amendment No. 2 disclosures and the June 10, 2022 response letter.
VIII. Assessment of Current S-1 Disclosure Adequacy
A. MD&A — Critical Accounting Policies
The current draft of the registration statement (Amendment No. 2, clean version, filed June 10, 2022) includes a dedicated subsection on the HLBV methodology within the critical-accounting-policies discussion in MD&A. The subsection addresses the following elements:
• A description of the HLBV methodology, including the hypothetical-liquidation concept and the role of the partnership agreement's waterfall provisions;
• Identification of the Solaris West tax-equity arrangement with Veltara Basin Financial LLC, including the $280,000,000 investment amount;
• The key assumptions underlying the HLBV calculation: the useful life of the solar PV assets, the expected flip date (2028), and the target after-tax IRR;
• A qualitative sensitivity discussion, indicating that changes in the key assumptions could materially affect the allocation of income or loss and the net income attributable to CBR's common stockholders; and
• Cross-references to the relevant financial-statement footnotes.
Assessment. The current MD&A disclosure is adequate for the purposes of the initial public offering, as evidenced by the SEC Staff's oral clearance indicated on June 14, 2022. However, for any future reactivation of the offering, we recommend enhancing the sensitivity discussion to include quantitative sensitivity analysis — for example, a disclosure indicating the estimated impact on the HLBV income/loss allocation of a one-year delay in the expected flip date, a change in the useful-life assumption, or a hypothetical ITC recapture event. Such quantitative sensitivity disclosures are increasingly common among comparable renewable-energy issuers and would strengthen the Company's disclosure posture in the event of further SEC Staff review.
B. Financial Statement Footnotes
The consolidated financial statements included in the registration statement contain the following HLBV-related footnote disclosures:
Note [X] — Tax-Equity Partnership and HLBV Methodology. This footnote discloses: (i) the nature and terms of the Solaris West tax-equity arrangement; (ii) a description of the HLBV methodology; (iii) the key assumptions and judgments involved in the HLBV calculation; and (iv) the tabular rollforward of the noncontrolling interest balance attributable to Veltara Basin for FY 2020 and FY 2021, as added in Amendment No. 2 in response to the second-round comment letter.
Note [Y] — Consolidation and Variable Interest Entities. This footnote discloses: (i) the Company's accounting policy for consolidation of variable interest entities; (ii) the basis for consolidation of the Solaris West SPV, including the determination that CBR is the primary beneficiary; and (iii) the carrying amounts of the assets and liabilities of the VIE included in the consolidated balance sheet.
Assessment. The footnote disclosures are consistent with A&P's audit approach and with the SEC Staff's expectations as of the date of oral clearance. The tabular rollforward added in Amendment No. 2 represents a meaningful enhancement that directly addresses the Staff's second-round request and provides investors with transparency into the noncontrolling interest allocation. No further enhancements are recommended at this time, although the footnotes will need to be updated for any additional reporting periods included in a reactivated registration statement.
C. Risk Factors
The risk-factor section of the registration statement includes the following HLBV-related disclosures:
(i) Complexity of HLBV Accounting and Earnings Volatility. The registration statement includes a risk factor disclosing that the Company uses the HLBV methodology to allocate income and loss in its tax-equity partnership, that the methodology involves significant estimates and judgments, and that the resulting allocations can create volatility in the Company's reported earnings that may not correspond to the operating performance of the underlying solar assets.
(ii) Dependence on Tax-Equity Financing. A risk factor discloses the Company's dependence on tax-equity financing for its current and future projects, the limited number of tax-equity investors in the market, and the risk that the Company may not be able to obtain tax-equity financing on favorable terms — or at all — for future projects.
(iii) ITC Recapture Risk. A risk factor addresses the possibility that certain events — including dispositions of the solar PV assets, cessation of use as qualifying property, or changes in ownership structure — could trigger recapture of the ITCs, with potential material adverse effects on the Company's financial condition and results of operations and on the Company's relationship with Veltara Basin.
(iv) Changes to Tax Credit Programs. A risk factor addresses the risk that changes to federal or state tax credit programs — including potential repeal, reduction, or modification of the ITC or the production tax credit ("PTC") — could affect the economics of partnership-flip structures and the Company's ability to attract tax-equity financing for future projects.
Assessment. The risk-factor disclosures are adequate and appropriately capture the material risks associated with the HLBV methodology and the tax-equity structure. The language in the risk factors aligns with the "material adverse effect" definition contained in the underwriting agreement for the proposed offering, including the carve-out for changes in GAAP or applicable law that would affect the Company and its competitors generally. No further enhancements are recommended at this time.
D. Recommendations for Reactivation
As of June 17, 2022, the IPO is in a dormant status, and no further filing activity is planned pending a decision by the Company's board of directors and the underwriters to reactivate the offering. If the offering is reactivated, the following HLBV-related updates will be required:
1. Updated HLBV Calculations. The HLBV calculations will need to be updated for any additional reporting periods included in the reactivated registration statement, including FY 2022 (if annual audited financial statements are required) and any quarterly interim periods. CBR's management team (Marcus Yoon, CFO; Priya Anand, VP Accounting and Tax) will need to prepare updated HLBV models for these periods, subject to review by A&P and the Calderwood & Harkness deal team.
2. Refreshed Sensitivity Analysis. The qualitative sensitivity discussion in MD&A should be refreshed to reflect any changes in flip-date expectations, useful-life estimates, or other key assumptions since the last filing. As noted above, we recommend that the sensitivity discussion be enhanced with quantitative analysis at the time of reactivation.
3. Confirmation of Methodology Consistency. Coordination with A&P will be required to confirm that any updated financial statements reflect the same HLBV methodology applied in prior periods, without changes in methodology or key assumptions that would require disclosure under ASC 250 (Accounting Changes and Error Corrections) or that could raise comparability concerns.
4. Assessment of New Tax-Equity Arrangements. The Company should assess whether any new tax-equity arrangements have been entered into for the projects currently under construction — specifically, Mesquite Wind (420 MW, Oldham County, Texas, expected COD Q3 2022) and Cimarron Solar (350 MW, Doña Ana Co

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