PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP Attorneys at Law
1000 Louisiana Street, Suite 5500 Houston, Texas 77002 Telephone: (713) 555-8400 Facsimile: (713) 555-8401 www.calderwoodharkness.com
January 25, 2024
VIA ELECTRONIC MAIL AND HAND DELIVERY
Rebecca Whitfield, Esq. General Counsel Calloway-Briggs Renewables Inc. 2300 Travis Street, Suite 4200 Houston, Texas 77006
Priya Narayanan Chief Financial Officer Calloway-Briggs Renewables Inc. 2300 Travis Street, Suite 4200 Houston, Texas 77006
Re: Review of Commitment Letter from Trident National Bank, N.A. for Project-Level Credit Facility — Solstice Plateau Energy Holdings LLC Reference Number: TNB-EIF-2024-0193 Calderwood & Harkness Matter Number: 48172.001
Dear Rebecca and Priya:
I am writing in my capacity as Responsible Partner, Mergers & Acquisitions, at Calderwood & Harkness LLP ("C&H" or the "Firm") to summarize the results of our review of the commitment letter dated and executed as of January 22, 2024 (the "Commitment Letter"), issued by Trident National Bank, N.A. ("Trident Bank"), signed by Patricia Henning, Managing Director, Energy & Infrastructure Finance, with principal office at 383 Madison Avenue, 12th Floor, New York, New York 10179. The Commitment Letter is addressed to Solstice Plateau Energy Holdings LLC (the "JV" or the "Borrower") and sets forth the terms and conditions under which Trident Bank is prepared to provide a project-level credit facility (the "Facility") to the JV.
As you are aware, the Commitment Letter was arranged by Lumen Ridge Infrastructure Partners LLC ("Lumen Ridge") in accordance with its obligation under Article IX, Section 9.02 of the Amended and Restated Limited Liability Company Agreement of Solstice Plateau Energy Holdings LLC, dated as of December 4, 2023 (the "LLC Agreement"), pursuant to which Lumen Ridge undertook the responsibility of arranging the project-level financing for the JV's solar project portfolio. The Facility constitutes a key component of the financing plan for the approximately 1.2 GW portfolio of eight utility-scale solar projects (the "Projects" or the "Portfolio") being developed through the JV entity by Calloway-Briggs Renewables Inc. ("CBR") and Lumen Ridge.
This letter is intended to provide CBR's management and in-house legal team with a detailed summary of the principal terms of the Commitment Letter, to identify issues requiring further negotiation or clarification in the definitive credit documentation, and to flag specific areas where the Commitment Letter terms intersect with or may affect CBR's rights and obligations under the LLC Agreement and other transaction documents executed in connection with the JV formation. This letter does not constitute a comprehensive legal opinion on the Commitment Letter, the proposed credit facility, or the enforceability or sufficiency of any term contained therein. We recommend that CBR review this summary in conjunction with the enclosed copy of the Commitment Letter itself and consult with us regarding any questions or concerns that arise.
The balance of this letter is organized as follows:
1. Overview of the Credit Facility
2. Security Package
3. Conditions Precedent to Closing and Initial Funding
4. Key Covenants and Restrictions
5. Tax Considerations
6. Commitment Expiration and Definitive Documentation
7. Items Requiring CBR's Attention and Recommended Actions
8. Conclusion
1. Overview of the Credit Facility
1.1 Parties. The Commitment Letter identifies the following parties to the proposed Facility:
Borrower. Solstice Plateau Energy Holdings LLC (EIN 93-4158203), a Delaware limited liability company formed for the purpose of holding and developing the Portfolio. The Borrower's registered office is located c/o Peachtree Corporate Services, Inc., 1209 Orange Street, Suite 300, Wilmington, Delaware 19801, and its principal business office is located at 2300 Travis Street, Suite 4210, Houston, Texas 77006 (one floor above CBR's corporate offices, consistent with the co-location arrangement discussed during the JV formation process). The Borrower is the entity through which CBR and Lumen Ridge jointly own and develop the Portfolio pursuant to the LLC Agreement.
Administrative Agent and Lead Lender. Trident National Bank, N.A. will serve as the administrative agent for the Facility and as the lead lender. Trident Bank is a national banking association headquartered in New York, New York, and is a well-established participant in energy and infrastructure project finance transactions. Its Energy & Infrastructure Finance division, led by Ms. Henning, has historically been active in financing renewable energy projects in the ERCOT, SPP, and WECC markets, which provides relevant institutional experience for the Projects.
Additional Lenders. The Commitment Letter contemplates that Trident Bank may syndicate all or a portion of its commitment to additional lending institutions; however, Trident Bank retains sole discretion over the timing, terms, and participants in any such syndication. The Commitment Letter does not currently identify any co-lenders or participants. We note that the absence of committed co-lenders at this stage is not unusual for a project finance facility of this size, but CBR should be aware that the composition of the lending syndicate may affect the negotiation dynamics for the definitive credit agreement and the ongoing administration of the Facility. We address syndication considerations further in Section 6.3 below.
1.2 Facility Structure
The Commitment Letter provides for a total commitment of up to $480,000,000 (four hundred eighty million dollars), structured as two distinct sub-facilities:
(a) Term Loan Facility. A term loan facility intended to provide permanent project financing for the Portfolio. Draws under the term loan facility are expected to be made upon or following achievement of commercial operation for individual Projects, at which point the applicable construction-period borrowings would convert (or be refinanced) into term loans. The specific mechanics of this conversion are to be set forth in the definitive credit agreement.
(b) Revolving Construction Facility. A revolving construction facility intended to fund draw-downs during the construction phases of individual Projects. This sub-facility is designed to accommodate the staggered construction timelines of the eight Projects, permitting the JV to draw and repay amounts as construction expenditures are incurred and as Projects reach commercial operation. The revolving nature of the construction facility provides flexibility for the JV to manage construction-period cash flows across the Portfolio without the need for multiple project-specific construction loans.
The Facility is structured as a project-level financing, meaning that the obligations of the Borrower under the Facility will be secured by the assets of Solstice Plateau Energy Holdings LLC and its direct and indirect project subsidiaries (each, a "Project Subsidiary"), rather than by the assets of the JV's members.
Non-Recourse to the Members. Critically, the Commitment Letter confirms that neither Calloway-Briggs Renewables Inc. nor Lumen Ridge Infrastructure Partners LLC shall have any personal liability or recourse obligation in respect of the Facility. This non-recourse structure is consistent with the parties' intent as expressed in Section 9.02(c) of the LLC Agreement, which provides that the project-level credit facility shall be structured on a non-recourse basis to the Members. We regard the inclusion of this confirmation in the Commitment Letter as a positive development. However, as discussed further in Section 2.2 below, the non-recourse commitment is subject to customary carve-outs for certain specified events ("bad boy" guarantees), the scope of which will need to be carefully negotiated in the definitive credit documentation.
1.3 Key Economic Terms
The principal economic terms set forth in the Commitment Letter are summarized below:
The 7-year term, with an expected maturity in approximately Q1 2031, aligns generally with the anticipated construction and initial operating timeline for the Portfolio. The interest rate of SOFR + 175 basis points is within the range discussed during the JV formation process and is broadly consistent with current market pricing for investment-grade project finance facilities in the utility-scale solar sector, although we note that pricing in this segment has tightened modestly over the past several months. CBR may wish to benchmark the proposed pricing against recent comparable transactions to confirm its competitiveness.
With respect to the commitment fee on undrawn amounts, the Commitment Letter sets forth a range of 25 to 37.5 basis points rather than a fixed rate. This leaves room for negotiation in the definitive credit agreement, and we recommend that CBR and Lumen Ridge seek to secure a rate at the lower end of the stated range (25 basis points), which is more consistent with market norms for facilities of this nature where drawdowns are expected to occur relatively promptly during the construction phase.
The upfront arrangement fee payable to Trident Bank is specified in a separate Fee Letter that was executed concurrently with the Commitment Letter. We have not reviewed the Fee Letter in detail for purposes of this summary, as its terms are typically subject to strict confidentiality provisions between the arranging bank and the borrower. We recommend that CBR and Lumen Ridge review the Fee Letter jointly to confirm that the arrangement fee is consistent with the economics discussed during the JV formation negotiations and that neither party bears a disproportionate share of the fee obligation.
1.4 Purpose of Facility
The Commitment Letter specifies that the proceeds of the Facility are to be used solely for the development, construction, and operation of the eight solar projects comprising the JV's Portfolio, as follows:
The use-of-proceeds restriction is consistent with the purpose of the JV as set forth in the LLC Agreement and is customary for project finance facilities, where lenders require assurance that borrowed funds are deployed exclusively for the development and operation of the financed assets. CBR should note that the use-of-proceeds limitation will preclude the use of Facility proceeds for any purpose outside the scope of the eight enumerated Projects, including any future pipeline projects that may be brought into the JV structure. Any expansion of the Portfolio would likely require a separate financing arrangement or an amendment to the Facility.
2. Security Package
2.1 Collateral. The Commitment Letter contemplates a comprehensive security package, as is standard for project finance transactions. The principal elements of the collateral package are as follows:
(a) Asset Lien. A first-priority lien on all assets of Solstice Plateau Energy Holdings LLC and each Project Subsidiary, including all tangible and intangible personal property, fixtures, equipment, accounts, contract rights, and general intangibles. This blanket lien is intended to provide Trident Bank with a first-priority security interest in the entirety of the JV's project-level asset base.
(b) Equity Pledge. A pledge of the membership interests in each Project Subsidiary held by the JV entity. This pledge permits Trident Bank, upon the occurrence of an event of default, to foreclose on the equity interests in the Project Subsidiaries and thereby acquire control of the underlying Projects without the need to foreclose on individual project assets.
(c) Assignment of Project Contracts. An assignment (as collateral) of all material project contracts, including without limitation:
(i) power purchase agreements ("PPAs") for each Project;
(ii) interconnection agreements with the applicable transmission operators and utilities;
(iii) land leases and surface use agreements covering the Project sites, which encompass approximately 14,340 aggregate acres across Pecos, Crockett, Webb, Wharton, Doña Ana, and Pinal counties in Texas, New Mexico, and Arizona;
(iv) engineering, procurement, and construction ("EPC") contracts for each Project; and
(v) the Development and Construction Management Agreement (execution version dated December 4, 2023) between the JV and CBR.
(d) Assignment of Insurance Proceeds. An assignment of all insurance proceeds, including proceeds under builder's risk and commercial property insurance policies. The Commitment Letter specifically references the Ironclad Mutual Insurance Co. policy, policy number BRX-2024-SP-00412, which was arranged by Blackthorn Risk Advisors LLC, the JV's insurance broker. Trident Bank will require that it be named as additional insured and loss payee under all applicable insurance policies.
(e) Assignment of Governmental Permits and Approvals. An assignment (to the extent assignable under applicable law) of all governmental permits, licenses, and approvals necessary for the development, construction, and operation of the Projects, including any county-level conditional use permits, state environmental authorizations, and applicable federal permits.
The collateral package described above is comprehensive and consistent with market practice for utility-scale renewable energy project finance transactions. CBR should be aware, however, that the assignment of project contracts — particularly the PPAs and the Development and Construction Management Agreement — will require the JV to obtain any necessary consents from counterparties to those agreements. We recommend that CBR begin identifying any consent requirements at this stage to avoid delays during the documentation process.
2.2 Non-Recourse Confirmation
As noted in Section 1.2 above, the Commitment Letter confirms that the Facility is structured on a non-recourse basis to CBR and Lumen Ridge in their respective capacities as members of the JV. This means that, in the event of a default under the Facility, Trident Bank's remedies are limited to the collateral described above and do not extend to the separate assets of CBR or Lumen Ridge.
The non-recourse commitment is, however, subject to standard carve-outs for certain enumerated events, commonly referred to as "bad boy" guarantees. The Commitment Letter references the following categories of carve-outs without specifying their detailed terms:
• Fraud or intentional misrepresentation by or on behalf of the Borrower or any Member;
• Willful misconduct by any Member in connection with the Facility or the Projects;
• Environmental indemnification obligations arising from the condition of the Project sites; and
• Misapplication of funds, including diversion of Facility proceeds or project revenues for purposes other than the permitted uses.
We strongly recommend that CBR carefully review and negotiate the scope of the bad-boy carve-outs in the definitive credit agreement. While the categories listed in the Commitment Letter are broadly customary, the specific language and triggering events can vary significantly from transaction to transaction, and overly broad carve-outs could inadvertently create recourse exposure for CBR. In particular, CBR should focus on ensuring that:
(a) the environmental indemnity carve-out is limited to pre-existing environmental contamination or environmental liabilities arising from the affirmative acts of a Member (as opposed to strict liability under applicable environmental statutes);
(b) the "misapplication of funds" carve-out is narrowly defined to cover intentional diversions of project revenues and does not sweep in good-faith disputes regarding the allocation of project cash flows among the various waterfall tiers; and
(c) the carve-outs do not create full recourse liability for the entire outstanding principal balance, but instead impose recourse only for losses directly attributable to the triggering event (a distinction that has significant economic implications).
3. Conditions Precedent to Closing and Initial Funding
The Commitment Letter sets forth a detailed list of conditions that must be satisfied (or waived by Trident Bank) prior to the closing of the Facility and the initial funding thereunder. These conditions are summarized below by category.
3.1 Documentary Conditions
The following documentary conditions must be satisfied prior to closing:
(a) Definitive Loan Documents. Execution and delivery of the definitive credit agreement, security agreement, pledge agreement, and all related loan documents, in each case in form and substance satisfactory to Trident Bank and its counsel. The Commitment Letter is expressly subject to the negotiation and execution of these definitive documents, and the terms described in the Commitment Letter serve as a framework for such negotiation rather than as binding contractual provisions (other than certain specified provisions, including the exclusivity, confidentiality, and expense reimbursement provisions, which are binding upon execution of the Commitment Letter).
(b) Legal Opinions. Delivery of customary legal opinions from borrower's counsel (Calderwood & Harkness LLP is anticipated to serve in this capacity) and from local counsel in each of the jurisdictions where Projects are located — specifically, Texas, New Mexico, and Arizona. These opinions are expected to address, at a minimum, the due organization, valid existence, and good standing of the Borrower and each Project Subsidiary; the due authorization, execution, and delivery of the loan documents; the enforceability of the loan documents; the creation and perfection of the security interests; and the absence of conflicts with applicable law and organizational documents.
(c) Organizational Documents. Delivery of certified copies of the following organizational documents:
(i) the LLC Agreement (execution version dated December 4, 2023);
(ii) the Certificate of Formation of Solstice Plateau Energy Holdings LLC (Delaware Secretary of State File Number 7849312, filed February 19, 2024); and
(iii) certificates of good standing (or their equivalent) from the Delaware Secretary of State and from the Secretary of State (or equivalent authority) of each state in which the Projects are located (Texas, New Mexico, and Arizona).
(d) Contribution Agreement. Delivery of a certified copy of the Contribution Agreement (execution version dated December 4, 2023) confirming CBR's contribution of the eight-project Portfolio to the JV. The Contribution Agreement is the instrument pursuant to which CBR transferred its development-stage interests in the eight Projects to Solstice Plateau Energy Holdings LLC in exchange for its membership interest in the JV.
(e) Development and Construction Management Agreement. Evidence that the Development and Construction Management Agreement (execution version dated December 4, 2023) between the JV and CBR is in full force and effect and has not been amended, modified, or terminated since its execution date. This agreement, as CBR is aware, establishes CBR's role as the development and construction manager for the Portfolio and sets forth the fee arrangements (1.5% development management fee and 3.0% construction management fee) that constitute a significant component of CBR's economic return from the JV.
3.2 Financial and Equity Conditions
(a) Equity Contributions. Evidence that aggregate initial equity contributions of $300,000,000 — comprised of $150,000,000 from CBR and $150,000,000 from Lumen Ridge — have been funded in full and are available in the JV's bank accounts. This condition is consistent with Section 3.01 of the LLC Agreement, which provides for initial capital contributions of $150,000,000 from each Member. CBR should confirm with Priya's team that the equity funding timeline is on track to satisfy this condition prior to the anticipated closing of the Facility.
(b) Financial Projections and Construction Budgets. Delivery of pro forma financial projections and detailed construction budgets for each of the eight Projects, in form and substance satisfactory to Trident Bank. Trident Bank's independent engineer (to be engaged as described in Section 3.5 below) will likely review these projections in connection with its assessment of the Projects' technical and financial feasibility.
(c) Minimum Equity-to-Debt Ratio. The Commitment Letter specifies a minimum equity ratio that, based on the contemplated capitalization structure, requires total project capitalization (equity plus debt) to maintain at least approximately 38% equity at all times. With initial equity contributions of $300,000,000 and a maximum Facility commitment of $480,000,000, the resulting equity ratio at full draw would be approximately 38.5% ($300M / $780M), which satisfies this threshold. However, CBR should note that compliance with this ratio must be maintained on an ongoing basis, meaning that any impairment of the JV's equity base (through operating losses or otherwise) could create a covenant compliance issue even if the debt balance remains unchanged.
3.3 Regulatory and Permitting Conditions
(a) Material Governmental Permits. Confirmation that all material governmental permits and approvals required for the development and construction of each Project have been obtained and are in full force and effect. We note that the final outstanding permitting condition — the conditional use permit for the Brazos Point project in Webb County, Texas — was received on January 10, 2024, approximately twelve days prior to the execution of the Commitment Letter. With the issuance of that permit, all eight Projects in the Portfolio have secured the material governmental permits necessary for construction to proceed.
(b) HSR Clearance. Evidence that the Hart-Scott-Rodino pre-merger notification requirement was satisfied in connection with the formation of the JV. As CBR is aware, the HSR filing was made in connection with the JV formation, and early termination of the statutory waiting period was granted on November 8, 2023 (HSR Transaction Number 20231018-CBR-LRI). This condition should be readily satisfiable through delivery of the early termination notice.
(c) FERC Approval. No approval from the Federal Energy Regulatory Commission is required for the Facility or for the operation of the Projects, as the Projects are qualifying facilities exempt from certain FERC regulatory requirements under the Public Utility Regulatory Policies Act of 1978 ("PURPA"). The Commitment Letter acknowledges this exemption.
(d) No Adverse Regulatory Actions. Confirmation that no material adverse regulatory actions are pending or threatened against the Borrower, any Project Subsidiary, or any Project. CBR should conduct a review of its regulatory correspondence files to confirm that this representation can be made as of the closing date.
3.4 Insurance Conditions
(a) Builder's Risk and Property Insurance. Evidence that the builder's risk and commercial property insurance program for the Portfolio is in place, with coverage amounts and deductibles satisfactory to Trident Bank. Trident Bank must be named as an additional insured and loss payee under all applicable policies.
(b) Ironclad Mutual Policy. The Commitment Letter specifically references the Ironclad Mutual Insurance Co. policy, policy number BRX-2024-SP-00412, which was arranged by Blackthorn Risk Advisors LLC, the JV's insurance broker. This policy is expected to serve as the primary builder's risk and commercial property insurance program for the Portfolio during the construction phase.
(c) Adequacy of Coverage. The Commitment Letter reserves to Trident Bank the right to determine the adequacy of the insurance coverage, including the scope of covered perils, policy limits, deductible amounts, and the financial strength ratings of the insurers. CBR should coordinate with Garrett Yoon at Blackthorn Risk Advisors to confirm that the existing program meets Trident Bank's requirements and to address any gaps prior to closing.
3.5 Diligence Conditions
The Commitment Letter requires satisfactory completion of Trident Bank's independent due diligence as a condition to closing. The principal components of this diligence workstream include:
(a) Independent Engineer's Report. Trident Bank will engage an independent engineering firm to prepare a comprehensive technical assessment of each of the eight Projects, including an evaluation of resource adequacy (solar irradiance data), technology and equipment specifications, construction timelines and budgets, and projected energy production. The identity of the independent engineer has not yet been specified in the Commitment Letter. CBR should be prepared to provide the independent engineer with access to all technical data, site-specific studies, and engineering analyses prepared during the development phase.
(b) Environmental Site Assessments. Trident Bank requires Phase I and, where applicable, Phase II environmental site assessments for each Project site. Existing assessments were prepared by TerraNova Environmental Sciences Inc., under the direction of Dr. Sharon Kessler, in connection with the development of the Projects. However, the Commitment Letter notes that Trident Bank may require updated or supplemental environmental reports if the existing assessments are not current or if additional investigation is warranted based on the findings of the Phase I assessments. CBR should determine the dates of the existing TerraNova assessments and confer with Trident Bank to ascertain whether reliance letters or updates will be required.
(c) Title Insurance. Trident Bank requires the issuance of lender's title insurance policies for each Project site, evidencing first-priority lien status and insuring against title defects. Meridian Land Title Company has been identified as the title insurance provider. CBR should coordinate with Meridian Land Title regarding the issuance of these policies and the resolution of any title exceptions or encumbrances identified during the title examination process.
(d) Appraisals. Appraisals of the Project sites and the project assets, prepared in accordance with the Uniform Standards of Professional Appraisal Practice ("USPAP") and satisfactory to Trident Bank. The Commitment Letter does not specify the appraiser; Trident Bank will likely select its own approved appraiser.
3.6 Other Conditions
(a) No Material Adverse Change. No material adverse change shall have occurred in the financial condition, operations, assets, or prospects of the Borrower or any Project between the date of the Commitment Letter (January 22, 2024) and the date of initial funding under the Facility. This is a broad condition that provides Trident Bank with the ability to decline to fund if there is a significant deterioration in the JV's circumstances or in the viability of any individual Project.
(b) Absence of Default. No default or event of default (as such terms will be defined in the definitive credit agreement) shall have occurred and be continuing as of the closing date and the date of each funding.
(c) Know-Your-Customer and Anti-Money Laundering Compliance. Satisfactory completion of Trident Bank's know-your-customer ("KYC") and anti-money laundering ("AML") diligence with respect to both JV members (CBR and Lumen Ridge), including review of beneficial ownership information, corporate organizational charts, and government identification documentation for key individuals. CBR's compliance team should begin assembling the required KYC/AML documentation promptly to avoid delays.
4. Key Covenants and Restrictions
The Commitment Letter outlines a framework of covenants that will govern the Borrower's operations and financial management during the term of the Facility. The specific language and detailed definitions of these covenants will be set forth in the definitive credit agreement; however, the Commitment Letter provides sufficient detail to identify the principal areas of concern for CBR.
4.1 Affirmative Covenants
The Borrower will be required to comply with the following affirmative covenants, among others:
(a) Financial Reporting. Delivery of quarterly unaudited financial statements (within 45 days of each quarter-end) and annual audited financial statements (within 90 days of each fiscal year-end). The Commitment Letter specifies that the annual audited financial statements are to be prepared by Pennington Clarke LLP, the JV's independent auditor, under the supervision of engagement partner Harold Yeung, CPA. CBR should confirm with Pennington Clarke that the audit engagement letter is in place and that the audit timetable is consistent with the 90-day delivery requirement.
(b) Maintenance of Permits. The Borrower must maintain in full force and effect all material permits, licenses, and governmental approvals necessary for the development, construction, and operation of the Projects.
(c) Insurance Maintenance. The Borrower must maintain adequate insurance coverage as required by the credit agreement, including builder's risk, commercial property, commercial general liability, and environmental liability insurance, with Trident Bank named as additional insured and loss payee.
(d) Environmental Compliance. The Borrower must comply in all material respects with all applicable environmental laws, regulations, and permits, and must promptly notify Trident Bank of any environmental claims, releases, or violations.
(e) Prompt Notice of Material Events. The Borrower must promptly notify Trident Bank of the occurrence of any material event, including (without limitation) any default or event of default under the Facility, any material litigation or governmental proceeding, any material casualty or condemnation affecting a Project, and any material amendment or termination of a material project contract.
4.2 Financial Covenants
The Commitment Letter identifies the following financial covenants, which will be set forth in greater detail in the definitive credit agreement:
(a) Minimum Debt Service Coverage Ratio ("DSCR"). The Borrower must maintain a minimum DSCR of 1.20x, to be tested on a quarterly basis commencing upon the earlier of (i) the date on which all Projects have achieved commercial operation or (ii) such earlier date as may be specified in the definitive credit agreement. A DSCR of 1.20x means that the JV's net cash flow available for debt service must equal or exceed 120% of the scheduled debt service (principal and interest) for the applicable measurement period. This is a standard covenant for project finance transactions and is designed to ensure that the JV generates sufficient cash flow to service its debt obligations with an adequate cushion.
(b) Maximum Leverage Ratio. The Commitment Letter indicates that a maximum leverage ratio covenant will be included in the definitive credit agreement, but does not specify the applicable ratio. CBR should seek to negotiate a leverage ratio that accommodates the JV's anticipated capitalization structure and provides sufficient headroom for fluctuations in project cash flows.
(c) Minimum Liquidity / Reserve Account Requirements. The Facility will require the Borrower to maintain certain reserve accounts, including a debt service reserve fund ("DSRF") equal to at least six (6) months of projected debt service. The DSRF must be funded at or prior to closing (or upon conversion from the construction facility to the term loan facility) and must be maintained at the specified level throughout the term of the Facility. The requirement to fund and maintain a DSRF will reduce the amount of cash available for distributions to the Members and should be factored into CBR's financial projections and distribution modeling.
4.3 Negative Covenants
The Commitment Letter contemplates the following restrictions on the Borrower's activities:
(a) Restrictions on Additional Indebtedness. The Borrower may not incur any additional indebtedness at the JV entity level without the prior written consent of Trident Bank (or, following syndication, the requisite lenders). This restriction is intended to protect the lenders' priority position and to prevent the dilution of their security interest through the incurrence of additional debt. CBR should note that this restriction may affect the JV's ability to obtain subordinated financing or mezzanine debt in the future, even if such financing would be beneficial to the Projects.
(b) Restrictions on Liens. The Borrower may not grant any liens on its assets other than permitted liens (which will be defined in the definitive credit agreement to include customary exceptions for statutory liens, purchase money security interests, and similar items). This is a standard covenant in project finance transactions.
(c) Restrictions on Asset Dispositions. The Borrower may not sell, transfer, or otherwise dispose of any Project assets without the prior written consent of Trident Bank. This covenant warrants particular attention from CBR. Under the LLC Agreement, any sale or disposition of a Project (or substantially all of the assets of a Project) requires supermajority approval of the Management Committee — specifically, the affirmative vote of five of the six Management Committee members (three appointed by CBR and three appointed by Lumen Ridge). The lender consent requirement in the Facility introduces an additional approval layer that operates independently of the JV governance framework. CBR should ensure that the definitive credit agreement and the LLC Agreement are aligned such that:
(i) the lender consent process does not create a de facto veto that circumvents the Management Committee's decision-making authority; and
(ii) the Management Committee does not approve a disposition that cannot be consummated because lender consent has not been obtained, which could create conflicts among the Members.
(d) Restrictions on Amendments to Material Project Contracts. The Borrower may not amend, modify, or terminate any material project contract — including the PPAs, land leases, EPC contracts, interconnection agreements, and the Development and Construction Management Agreement — without the prior written consent of Trident Bank. This restriction has direct implications for CBR's management fee arrangements. The Development and Construction Management Agreement provides for a 1.5% development management fee and a 3.0% construction management fee payable to CBR in consideration for its services as the development and construction manager for the Portfolio. Any proposed amendment to these fee arrangements — whether initiated by CBR, Lumen Ridge, or the Management Committee — would require Trident Bank's prior consent. CBR should consider whether the definitive credit agreement should include a carve-out for ordinary-course administrative amendments to the Development and Construction Management Agreement that do not affect the economic terms of the fee arrangements.
(e) Distribution Restrictions. The Commitment Letter contemplates a cash sweep mechanism and limitations on distributions to the Members. Under the contemplated structure, a portion of the JV's excess cash flow would be subject to a mandatory sweep that directs funds toward accelerated repayment of the Facility, with distributions to Members permitted only after satisfaction of specified conditions (including maintenance of the minimum DSCR, funding of the DSRF, and absence of any default). This provision may materially affect the timing and amount of distributions to CBR and Lumen Ridge under the LLC Agreement's three-tier distribution waterfall, which provides as follows:
• Tier 1: Distributions are split 50/50 between CBR and Lumen Ridge until Lumen Ridge achieves an 8% internal rate of return ("IRR") on its invested capital;
• Tier 2: Distributions are split 60/40 in favor of CBR until Lumen Ridge achieves a 12% IRR on its invested capital; and
• Tier 3: Distributions above the 12% IRR threshold are split 50/50 between CBR and Lumen Ridge.
The interposition of a cash sweep mechanism between the JV's operating cash flows and the Members' distribution entitlements could delay Lumen Ridge's achievement of the IRR thresholds and, consequently, delay CBR's transition to the more favorable Tier 2 distribution split. We address this issue further in Section 7.1 below as a priority negotiation item.
5. Tax Considerations
The Commitment Letter does not directly address the tax structure of the JV or the allocation of tax benefits (including investment tax credits and depreciation deductions) between CBR and Lumen Ridge. However, certain provisions of the Commitment Letter are relevant to CBR's tax position and warrant careful consideration.
Tax Protection Agreement. As CBR is aware, the JV formation transaction documents include a Tax Protection Agreement (execution version dated December 4, 2023) (the "TPA") between the JV, CBR, and Lumen Ridge. The TPA provides CBR with a 7-year tax protection against the recognition of the approximately $55,800,000 of built-in gain on the assets contributed by CBR to the JV. This built-in gain arises from the difference between the fair market value of the contributed Portfolio assets ($90,000,000) and CBR's adjusted tax basis in those assets ($34,200,000) at the time of contribution. Under the TPA, if the JV disposes of any contributed asset during the 7-year tax protection period (which expires on approximately February 20, 2031), in a transaction that triggers the recognition of all or a portion of the built-in gain, the JV is obligated to make a make-whole payment to CBR in an amount sufficient to compensate CBR for the resulting tax liability.
The restriction on asset dispositions in the Commitment Letter (discussed in Section 4.3(c) above) is generally consistent with CBR's interests under the TPA, as it limits the JV's ability to dispose of contributed assets during the Facility term (which also extends to approximately Q1 2031, closely tracking the TPA protection period). However, this alignment is coincidental rather than structural, and there are scenarios under which the Facility's remedial provisions could come into conflict with the TPA. Specifically, if an event of default occurs under the Facility and Trident Bank exercises its remedies — including foreclosure on the collateral or a forced sale of Project assets — such a disposition could trigger the recognition of built-in gain and activate the make-whole payment obligation under the TPA. In such circumstances, the JV (or its remaining assets) may lack the financial resources to satisfy the make-whole obligation, leaving CBR with an unsecured claim against an entity in financial distress.
We recommend that CBR seek to include in the definitive credit agreement one or more provisions designed to coordinate the Facility's remedial framework with CBR's tax protection rights. Such provisions might include:
(a) a requirement that Trident Bank provide advance notice (e.g., 30 to 60 days) to CBR before exercising remedies that could result in a taxable disposition of contributed assets during the tax protection period;
(b) a covenant requiring the JV to maintain adequate reserves or insurance to fund any make-whole payment obligation that could arise from a lender-initiated disposition; and
(c) a provision requiring Trident Bank to consider, in good faith, alternatives to asset dispositions (such as workouts or forbearance arrangements) that would avoid triggering the built-in gain recognition during the protection period.
We note that provisions of this type are not standard in project finance credit agreements and may face resistance from Trident Bank. CBR should weigh the importance of these protections against the potential for delay in the documentation process. Leonard Cross, Specialist Partner, Tax, at Calderwood & Harkness LLP's New York office, is available to provide further analysis on the interplay between the Facility terms and CBR's tax protections and to assist in drafting appropriate protective language for the definitive credit agreement. We recommend scheduling a call with Leonard at CBR's earliest convenience.
6. Commitment Expiration and Definitive Documentation
6.1 Commitment Expiration
The Commitment Letter provides that Trident Bank's commitment to provide the Facility will expire automatically if the definitive credit agreement is not executed and delivered within 120 days of the date of the Commitment Letter — that is, by approximately May 21, 2024. If the definitive credit agreement is not executed by such date, Trident Bank's obligations under the Commitment Letter will terminate, and the parties will have no further obligation to one another thereunder (other than with respect to any surviving provisions, such as confidentiality and expense reimbursement).
The 120-day timeline, while not uncommon for commitment letters of this type, is relatively tight given the complexity of the Facility and the number of conditions precedent that must be satisfied. The documentation process for a $480,000,000 multi-project credit facility typically requires 90 to 150 days from the commencement of negotiations, depending on the complexity of the collateral structure, the number of jurisdictions involved, and the responsiveness of the parties and their advisors. We recommend that CBR commence negotiations on the definitive documentation promptly and establish a detailed workplan and timeline with Trident Bank and Lumen Ridge's counsel to ensure that the May 21, 2024 deadline can be met. If it becomes apparent during the negotiation process that additional time is needed, CBR and Lumen Ridge should seek an extension of the commitment period in writing from Trident Bank, preferably before the expiration date is imminent.
6.2 Definitive Documentation
The Commitment Letter is expressly subject to the negotiation, execution, and delivery of definitive documentation, including:
(a) a definitive credit agreement governing the terms and conditions of the Facility;
(b) a security agreement granting Trident Bank a first-priority security interest in the assets of the Borrower and each Project Subsidiary;
(c) a pledge agreement with respect to the membership interests in each Project Subsidiary;
(d) an intercreditor agreement, if applicable (e.g., if the Facility is syndicated to multiple lenders with different priority levels or if additional financing is obtained from other sources);
(e) mortgage instruments or deeds of trust for any real property interests included in the collateral package;
(f) collateral assignment agreements for each material project contract; and
(g) such other loan documents and ancillary agreements as Trident Bank and its counsel may reasonably require.
All definitive documentation must be in form and substance satisfactory to Trident Bank and its counsel. We note that Trident Bank's counsel has not yet been identified in the Commitment Letter. It is common for lender's counsel in transactions of this size and complexity to be a major national or international law firm with a dedicated project finance practice. CBR should anticipate that the fees and expenses of Trident Bank's counsel will be borne by the Borrower (i.e., the JV) as a closing cost, and should budget accordingly. We will seek to identify Trident Bank's counsel at the earliest opportunity and establish working-group protocols to facilitate an efficient documentation process.
6.3 Syndication. The Commitment Letter reserves to Trident Bank the right to syndicate all or a portion of its $480,000,000 commitment to other financial institutions prior to or following the closing of the Facility. Syndication is a customary feature of large project finance facilities, as it allows the lead lender to distribute credit risk across multiple participants while maintaining its role as administrative agent.
CBR should consider the following syndication-related issues in connection with the negotiation of the definitive credit agreement:
(a) "Yank-a-Bank" Provisions. CBR and Lumen Ridge may wish to request the inclusion of "yank-a-bank" provisions in the definitive credit agreement. These provisions would allow the Borrower to replace a non-consenting or defaulting lender in the syndicate with a substitute lender, subject to specified conditions. Yank-a-bank provisions are increasingly common in syndicated credit facilities and provide the borrower with a mechanism to resolve lender-level disputes without disrupting the overall facility.
(b) Minimum Hold Requirements. CBR should consider whether to request that Trident Bank commit to retaining a minimum portion of the Facility (e.g., 20% to 30% of the total commitment) for the life of the transaction. A minimum hold requirement ensures that the lead lender retains meaningful economic exposure to the Facility and is incentivized to remain actively engaged in the administration and management of the lending relationship.
(c) Consent Rights Over Assignees. The definitive credit agreement should include provisions requiring the Borrower's consent (not to be unreasonably withheld) before any lender may assign its commitment to a third party. This protects the JV from being placed in a lending relationship with an institution that may have different risk tolerances or administrative practices than those of Trident Bank.
7. Items Requiring CBR's Attention and Recommended Actions
Based on our review of the Commitment Letter, we have identified the following items that require CBR's attention and, in certain cases, affirmative action. We have organized these items in approximate order of significance.
7.1 Distribution Waterfall / Cash Sweep Interaction
As discussed in Section 4.3(e) above, the Commitment Letter's cash sweep mechanism and distribution limitations may materially restrict or delay the flow of distributions to CBR and Lumen Ridge under the LLC Agreement's three-tier waterfall. The cash sweep mechanism, as described in the Commitment Letter, would require a portion of excess project cash flows to be applied to accelerated debt repayment before any distributions are made to the Members.
Recommended Action: We recommend that CBR and Lumen Ridge negotiate with Trident Bank to ensure that the distribution restrictions in the definitive credit agreement are structured to accommodate the three-tier waterfall in the LLC Agreement. At a minimum, the definitive credit agreement should provide that distributions to Members are permitted once the following conditions are satisfied: (i) the minimum DSCR of 1.20x is maintained on a trailing twelve-month basis; (ii) the DSRF is fully funded at the required level (six months of projected debt service); (iii) no default or event of default has occurred and is continuing; and (iv) any applicable cash sweep obligations have been satisfied for the relevant measurement period. CBR should also seek to negotiate a cap on the cash sweep percentage (e.g., 50% to 75% of excess cash flow) to preserve a meaningful distribution stream for the Members even during the debt repayment period.
7.2 Scope of Non-Recourse Carve-Outs
As discussed in Section 2.2, the bad-boy guarantee carve-outs in the Commitment Letter are described in general terms and will require detailed negotiation in the definitive credit agreement. The scope of these carve-outs is a critical issue, as overly broad carve-outs could transform what is nominally a non-recourse facility into a facility with significant recourse exposure for CBR.
Recommended Action: CBR should retain experienced project finance counsel (we are prepared to serve in this capacity) to negotiate the bad-boy carve-outs in the definitive credit agreement with the objective of limiting them to customary triggering events — specifically, fraud, intentional misrepresentation, willful misconduct, environmental contamination caused by the affirmative acts of a Member, and intentional misapplication of funds. CBR should resist any effort by Trident Bank to include non-standard carve-outs (such as failure to maintain insurance, failure to pay taxes, or breach of a single-purpose entity covenant) that could create recourse exposure for events outside CBR's direct control.
7.3 Lender Consent for Asset Dispositions / Contract Amendments
As discussed in Sections 4.3(c) and 4.3(d), the lender consent requirements for asset dispositions and amendments to material project contracts raise governance coordination issues between the Facility and the LLC Agreement.
Recommended Action: The definitive credit agreement should include provisions that coordinate the lender consent process with the JV's Management Committee governance framework to avoid procedural conflicts. For example, the definitive credit agreement might provide that lender consent for an asset disposition is sought concurrently with (or promptly following) Management Committee approval, with a specified response period for the lender to provide or withhold consent. In addition, the management fee provisions in the Development and Construction Management Agreement should be addressed to ensure that ordinary-course fee payments to CBR (at the agreed rates of 1.5% development management fee and 3.0% construction management fee) are not treated as restricted payments or distributions subject to the cash sweep mechanism or distribution limitations. We recommend including specific carve-outs in the definitive credit agreement for payments to CBR under the Development and Construction Management Agreement.
7.4 Tax Protection Coordination
As discussed in Section 5, the potential for a lender-initiated disposition to trigger built-in gain recognition and activate the make-whole payment obligation under the Tax Protection Agreement is a significant risk for CBR.
Recommended Action: CBR should seek to include in the definitive credit agreement provisions requiring Trident Bank to provide advance notice (not less than 60 days) to CBR before exercising any remedy that could result in a taxable disposition of contributed assets during the 7-year tax protection period (through February 20, 2031). CBR should also explore whether additional protective measures — such as a covenant requiring the JV to maintain a tax protection reserve account — are feasible and appropriate. We recommend that CBR schedule a meeting with Leonard Cross to discuss the specific language and negotiating strategy for these provisions.
7.5 Insurance Program Alignment
The Commitment Letter contains detailed insurance requirements that the JV must satisfy as a condition to closing and on an ongoing basis.
Recommended Action: CBR should coordinate promptly with Blackthorn Risk Advisors LLC (Garrett Yoon, account executive) to confirm that the existing Ironclad Mutual Insurance Co. policy (BRX-2024-SP-00412) and any additional policies in the JV's insurance program satisfy Trident Bank's requirements. Specific items to address include:
(a) confirmation that Trident Bank can be added as an additional insured and loss payee under all applicable policies;
(b) confirmation that the coverage limits, deductibles, and scope of covered perils meet Trident Bank's minimum requirements (which will be specified in greater detail in the definitive credit agreement);
(c) identification of any gaps in coverage that may need to be addressed through endorsements or supplemental policies; and
(d) coordination on the timing of policy renewals to ensure continuous compliance with the Facility's insurance covenants.
7.6 Environmental and Title Diligence
Trident Bank's diligence conditions include Phase I and Phase II environmental site assessments and lender's title insurance policies for each Project site.
Recommended Action: CBR should take the following steps:
(a) Determine the dates and scope of the existing Phase I and Phase II environmental site assessments prepared by TerraNova Environmental Sciences Inc. (Dr. Sharon Kessler) and confirm whether Trident Bank will accept these existing reports or will require updated or supplemental assessments. If reliance letters are needed (to permit Trident Bank to rely on assessments prepared for CBR's benefit), CBR should request these from TerraNova promptly.
(b) Coordinate with Meridian Land Title Company regarding the issuance of lender's title insurance policies for each Project site. This process will require title searches, review and resolution of title exceptions, and issuance of commitment letters from Meridian Land Title. Given that the Projects are spread across six counties in three states, this workstream should be initiated immediately to avoid delays in the closing timeline.
7.7 Timing / Commitment Expiration
As discussed in Section 6.1, the 120-day commitment expiration date of approximately May 21, 2024 imposes a meaningful deadline on the documentation process.
Recommended Action: We recommend scheduling a kick-off call at the earliest practicable date — ideally within the next seven to ten business days — with the following participants:
• Patricia Henning, Managing Director, Trident National Bank (lender side);
• Gregory Haverford III and Joanna Kline, Haverford, Quinn & Steele LLP (counsel to Lumen Ridge, in its capacity as the party responsible for arranging the Facility);
• Representatives of CBR's management and legal teams (Rebecca Whitfield, Priya Narayanan, and Daniel Estrada);
• James Prentice and Megan Chu, Calderwood & Harkness LLP (counsel to CBR); and
• Trident Bank's counsel (to be identified).
The purpose of the kick-off call would be to establish a documentation timeline, allocate drafting responsibilities, identify potential issues requiring early resolution, and set a schedule for the exchange of initial drafts and comment periods. Given the complexity of the Facility and the number of parties involved, an organized and disciplined documentation process will be essential to meeting the May 21 deadline.
7.8 Additional Capital Calls and Facility Interaction
The LLC Agreement authorizes additional capital calls of up to $200,000,000 per Member ($400,000,000 in the aggregate), subject to supermajority approval of the Management Committee (five of six votes). Additional equity infusions may be necessary or desirable during the construction and operation of the Portfolio, depending on project economics, construction cost overruns, or other developments.
Recommended Action: CBR should confirm that the Facility's covenant framework accommodates the potential for additional equity contributions to the JV. Specifically, CBR should ensure that:
(a) additional equity contributions are treated as equity (and not as subordinated debt) for purposes of the leverage and coverage covenants in the Facility, thereby improving (rather than impairing) covenant compliance;
(b) the Facility does not restrict the Members' ability to make additional capital contributions or condition such contributions on lender consent; and
(c) the cash management and distribution provisions in the Facility do not interfere with the JV's ability to issue capital call notices or apply the proceeds of additional contributions for their intended purposes.
8. Conclusion
In summary, the Commitment Letter from Trident National Bank represents a significant and positive step toward securing the project-level financing contemplated by the LLC Agreement and the broader financing plan for the Solstice Plateau Energy Holdings LLC portfolio. The key economic terms — a total commitment of up to $480,000,000, a 7-year term, an interest rate of SOFR + 175 basis points, and a non-recourse structure — are broadly consistent with the terms outlined in Section 9.02 of the LLC Agreement and discussed by the parties during the JV formation process.
At the same time, several important items identified in this letter require further negotiation and resolution in the definitive credit agreement. In particular, CBR should prioritize the following matters:
1. Negotiation of the cash sweep mechanism and distribution restrictions to ensure compatibility with the LLC Agreement's three-tier distribution waterfall;
2. Careful scoping of the bad-boy guarantee carve-outs to prevent inadvertent expansion of member-level recourse liability;