Priya,
I wanted to memorialize in one place the arc of the pricing negotiations between CBR and Pinehurst Insurance Group, Inc. regarding the Section 6418 transferable tax credit purchase for the Solstice Portfolio, and to lay out the terms now on the table so you can take them back to Marcus and Theo for a decision.
As you know, I have been in regular contact with Gwen Schaefer at Thornberry Mack LLP (Pinehurst's outside counsel) as well as directly with Alec Drummond (Director, Alternative Tax Investments) and Catherine Moreau (SVP, Tax & Treasury) at Pinehurst on the commercial terms. Below is a summary of where we've been and where we are.
**I. Negotiation History — Pricing**
*Pinehurst's Initial Bid: $0.89 per Dollar of Credit*
Pinehurst initially proposed a purchase price of $0.89 per dollar of credit. On $60,000,000 in face-value ITCs, that would have yielded aggregate cash proceeds of only $53,400,000. Pinehurst cited several justifications for this discount: uncertainty around IRS guidance on the § 6418 transfer mechanics (this being a relatively new provision under the Inflation Reduction Act), perceived execution risk on the pre-filing registration requirements, and the sheer size of the credit block. Roland Thornberry at Thornberry Mack also flagged that the indemnity structure in our initial draft was, in his view, insufficiently protective of Pinehurst at that price point.
*CBR's Counter: $0.94 per Dollar of Credit*
You and Theo countered at $0.94 per dollar, which on $60,000,000 in face value would produce $56,400,000 in aggregate proceeds. CBR's position emphasized: (i) the high quality of the underlying projects — 420 MW across seven projects, all with investment-grade offtakers under long-term PPAs (Lone Star Grid Solutions for the five Texas projects and Enchantment Power Cooperative for the two New Mexico projects); (ii) the strength of the prevailing wage and apprenticeship compliance program under the Vasquez Brothers Construction EPC contracts; and (iii) the robustness of the 40% ITC rate (30% base plus 10% domestic content bonus adder). CBR also pointed to competitive interest from other potential credit buyers at or above $0.92.
*Pinehurst's Movement to $0.92 — Conditioned on Enhanced Indemnity*
After several rounds of discussion (calls on August 10, 14, and 18), Catherine Moreau indicated that Pinehurst would move to $0.92 per dollar of credit, yielding an aggregate purchase price of $55,200,000 on the $60,000,000 face value. Critically, however, this movement was conditioned on Thornberry Mack's request for enhanced indemnity provisions in the Tax Indemnity Agreement, specifically:
- Indemnity to cover 100% of the credit amount plus a gross-up for Pinehurst's incremental tax cost in any ITC recapture or disallowance scenario; - A cap on CBR's indemnification obligation at 125% of the purchase price — i.e., $69,000,000 ($55,200,000 × 1.25); and - A survival period extending through 60 days following the expiration of the 5-year ITC recapture period under § 50(a).
I want to flag that, while these enhanced indemnity provisions are broader than what we had in our initial draft, they are within the range of what we are seeing in the market for credit transfer transactions of this size.
**II. Deal Economics Summary at $0.92**
For ease of reference, here is a snapshot of the economics at the current proposed price:
- Face value of credits being sold: $60,000,000 - Purchase price: $0.92 per $1.00 of credit - Aggregate cash proceeds to CBR: $55,200,000 - Retained credits: CBR retains an additional $4,800,000 in face-value ITCs for its own use (from the total $64,800,000 in § 6418-eligible credits across the portfolio) - Payment mechanics: Pinehurst deposits $55,200,000 into escrow at Clearwater Escrow Services, Inc. (Account No. CES-2023-80114) five business days before closing; funds are released upon delivery of executed Transfer Election Statements and the closing certificate - Total deal value: This $55,200,000 in credit-sale proceeds, combined with Ridgeline Capital Partners' $120,000,000 tax-equity commitment and CBR's $4,800,000 in retained credits, brings the total deal value to $180,000,000
**III. Market Context and Recommendation**
Based on our recent experience and market intelligence, § 6418 credit transfer pricing for solar ITCs has been ranging from approximately $0.88 to $0.94 per dollar, with the median around $0.91–$0.92 for portfolios of this quality and scale. The $0.92 figure represents a market-clearing price and sits at the upper end of the range, particularly given that this is a large $60M block and the § 6418 market is still developing.
The enhanced indemnity terms, while broader than our initial position, are commercially reasonable and reflect the trade-off that moved Pinehurst from $0.89 to $0.92. The incremental $1,800,000 in proceeds ($55,200,000 versus $53,400,000) is meaningful, and the indemnity framework Pinehurst is asking for in return is one we are comfortable with from a risk-allocation perspective.
Our recommendation is that CBR accept $0.92 per dollar and the associated indemnity framework. Once you confirm the client's direction, I will circulate a revised draft of the Tax Credit Purchase Agreement and Tax Indemnity Agreement reflecting these terms. We should aim to have the TCPA in substantially final form ahead of the September 21 signing target for the full package (LLCA, TCPA, and ancillary documents).
**IV. Next Steps**
Could you please discuss with Marcus and Theo and let us know CBR's direction? If it would be helpful, I am happy to arrange a call with Leonard (copied here) to walk through any of the above in more detail. Once pricing is locked, our focus will shift to finalizing the conditions precedent, the form of Transfer Election Statement, and coordinating the escrow mechanics with James Harding at Clearwater.
Thank you, Priya. We're in good shape and I look forward to hearing from you.
Best regards,
Leila Nazari Calderwood & Harkness LLP 600 Lexington Avenue New York, NY 10022 Direct: (212) 554-6193 lnazari@calderwoodharkness.com Matter No. 1015-00005
---
CONFIDENTIALITY NOTICE: This e-mail message, including any attachments, is intended only for the use of the individual or entity to which it is addressed and may contain information that is privileged, confidential, and exempt from disclosure under applicable law, including attorney-client privilege and attorney work product doctrine. If you are not the intended recipient, or an employee or agent responsible for delivering this message to the intended recipient, you are hereby notified that any dissemination, distribution, or copying of this communication is strictly prohibited. If you have received this communication in error, please notify the sender immediately by reply e-mail and delete the original message and all copies from your system. Thank you.