DSD Renewables Head of Structured Finance on firm's approach to raising efficient capital

Armed with a new USD 300m debt facility from Credit Suisse and a USD 150m construction revolver with Rabobank, distributed solar developer DSD Renewables has hit the ground running building out a number of solar and solar + storage projects across its rapidly growing coverage area in 23 states.

By closing the two financing facilities back-to-back and ensuring that the terms and eligibilities line up, the firm is now poised to continue to build out its pipeline without the need to structure new deals for the next two years.

To learn more about the firm's approach to securing "efficient capital" vs. only focusing on total cost, as well as its approach to developer partnerships and the tax equity market, NPM spoke with DSD's Head of Structured Finance Jamie Hutson.

NPM: First, can you tell me a bit about the background of DSD and its current lineup/pipeline of projects?

Jamie Hutson: We have a decent lineup of projects in our pipeline across the generation asset class. We have community solar projects, corporate C&I, rooftop behind-the-meter, municipals, and we have energy storage projects in there as well, so we run the gamut. We've got projects in 23 states across the country concentrated in the C&I DG markets. But we're looking at opportunities for some of the newer entrants like New Mexico and Maine. So, we've got a pretty good pipeline that we're looking to execute over the next several years.

NPM: It sounds like DG solar is becoming viable regardless of local policies supporting it. Is that what you have found?

I think that's right. Particularly with our corporate customers that realize that there are states without good programs but with good solar resources. So, it's a combination of that and more states coming in with good RPS and various policies. A lot of states are looking at the success that the New York program has had and coming to the market with some sort of offering that brings investment into their states. The market is expanding.

NPM: Is storage a new venture for you, or have you been involved in it extensively at this point?

We've developed a decent chunk of solar + storage projects that are operating today for a DG developer. And we have a good pipeline with a high attachment rate; about a third of the new projects in our pipeline have storage attached.

NPM: Is that something your customer base is requesting, or is DSD pitching storage?

It varies by project. Sometimes we pitch it because we think there's value to be added. Sometimes the customer specifically requests it.

NPM: Is this construction revolver the firm’s first transaction with Rabobank?

This is the first transaction we've had with Rabobank, but we've been in talks for several years. We had a financing facility that we closed and completed last year, so they were talking with us about that facility two years ago. We obviously went with a different bank, but we've known that team and were able to come together with a very constructive facility. It's a great structure and a great team to work with. We're excited about the partnership going forward.

NPM: Are revolvers common with distributed solar finance contracts? If not, what traits about DSD and its plan for the C&I market did you leverage to secure this one?

It's not uncommon, but it's not the norm. It's more common in a residential to have this type of facility. This one is unusual in that it is a two-year commitment, which is not the norm. But that goes to our efficiency point and being able to tie that up with our Credit Suisse facility, which we recently also announced, as our back-leveraged warehouse. So basically, we are able to utilize this construction loan as a bridge to that warehouse and that allows us to match the tenors and terms that we can rely on for the next two years without having to structure another deal.

NPM: As someone who has worked with a number of banks, are you're vetting them to find the best deal or are you concentrating on longer term relationships?

It's a combination. Relationships are very important to DSD and to me as the leader of this team. When the inevitable problems with a project occur, it's important to be able to talk to a friendly person to talk through solutions rather than problems. The cost of capital is important, but more important for us is the efficiency of that capital. How easy is it to structure around? How easy is it for a project to put projects into it? If we start building a project in January, it's got to have permanent capital at the end, tax equity in the middle, and construction financing up front. That all needs to work together, so selecting parties that can work together with us and structure a deal for our business is the key.

The key thing is our pipeline and our platform's ability to properly develop and construct these projects. We've got an experienced EPC team, a great development team, and we have a great asset management team. So, we're able to offer a turnkey solution as a single-facing facility to our financing counterparties. Rabobank can look at us as the master EPC contractor, operations and management entity and asset manager as a single entity.

NPM: How does the revolver fit in with the USD 300m debt facility closed with Credit Suisse?

They have the same term and they both use the same set of edibility criteria. So, we know that any project eligible for our back-leveraged facility is eligible for the construction loan.

NPM: The release notes the revolver “incorporates multiple tax equity partnerships.” Are these existing partnerships with DSD? How do they fit into this structure?

This is definitely unusual in the DG and utility-scale project finance markets. What we were able to do is build in the flexibility over the two years to have multiple tax equity partnerships, which is likely to happen. They can be with the same investors or different investors; we've built that flexibility into the structure. And that goes back to the efficiency of capital where we don't have to have a new debt facility for each tax equity partnership.

NPM: I know securing tax equity has been difficult for the last several months. Is that something DSD struggled with?

We were fortunate that we had tax equity in place for last year. It is definitely a challenge trying to put together tax equity this year. There are a lot of projects that didn't find a chair in the game of musical chairs. But we're fortunate to have good relationships and strong partnerships and a pipeline, so we should be in good shape this year, as well.

NPM: Greg Fabso was quoted saying “we work to continue to become an industry hub for the C&I market.” Can you tell me a little more about this vision?

Our general vision is to try and bring together what is a very fragmented market and offer solutions to developers, our customers and various different types of assets. We have a pretty diverse capability of developing, constructing, operating and financing assets. Specifically, with the financing, that's really where we can become a partner to these developers as well as our corporate customers to help give them the best project they can get.

NPM: So, when you are working with these other developers, are you looking to acquire the projects at the end or is it broader than that where those developers have the ability to do what they want with their projects once they are completed?

It goes back to relationships. We're trying to be good partners to these developers. There are places where we can add value early, the construction phase, and financing and structuring. Not all developers need aid with all of those, but we want to be a partner that can fit their needs.