The market is awash in liquidity. Banks are moving up the risk curve in the chase for deals. Bank deal volume was down in the first half of 2015, but is expected to pick up. Demand for tax equity is expected to accelerate. Discount rates used to bid for assets have dropped by at least 100 basis points from a year ago. The talk in banking circles is about “total return vehicles” and the move from “warehouse 1.0” to “warehouse 2.0.”

Four investment bankers and one commercial banker talked about these and other financing trends at the Chadbourne 26th annual global energy & finance conference in June. The panelists are Ted Brandt, CEO of Marathon Capital, Michael Proskin, a managing director in the power and utilities group at Credit Suisse, Andrew Redinger, managing director and head of utilities, power and renewables at KeyBanc Capital Markets, Thomas Emmons, managing director and head of project finance for the Americas at Rabobank, and Jon Fouts, a managing director in the global power and utilities group at Morgan Stanley. The moderator is Rohit Chaudhry with Chadbourne in Washington.

MR. CHAUDHRY: Let me start by going around the panel to ask each of you what you think are the trends in the market this year.

MR. BRANDT: Massive liquidity; lots of competition around cost of funds and a trend to move backwards away from de-risked projects toward projects that still have risk left in them.

MR. PROSKIN: Liquidity is certainly a theme. Low gas prices have changed the market for LNG. Things like debt warehousing facilities and other forms of cheaper capital continue to fuel the M&A dynamic.

MR. REDINGER: These are somewhat longer-term trends, but I see four. One is distributed generation. We are at the very early stages of changing the utility model. How we generate electricity in this country is changing.

Another that perhaps we will be talking about at this conference next year is total return vehicles. Sempra just announced a yield-oriented vehicle. It plans to launch a master limited partnership that it calls a total return vehicle. We already have yield cos formed to own renewable energy assets. MLPs and REITs will wake up and realize that they can get into this asset class, too. We will start hearing more about total return vehicles in the future.

The next trend is warehouse facilities. There has been a warehouse facility 1.0, and warehouse facility 2.0 is already being discussed. We will get into what it means in more detail later.

Finally, there is ethane. You may not have heard much about ethane. It is a by-product from processing natural gas. Ethane is currently a dollar cheaper than natural gas, and this is especially true in PJM. I think we will see a lot of thermal power plants start burning ethane in place of natural gas, especially in PJM where ethane prices may fall even lower than they are today.

MR. EMMONS: I see two trends. Deals have gotten bigger in 2015 compared to 2014. The average deal size has moved to $500 million in the first half of this year compared to $300 million in 2014. The second trend is liquidity. Last year, 20 banks, during the whole year, committed $300 million each, but this year, only through May, 20 banks have already committed at least $300 million, so 2015 will be a year where a small number of banks are committing significantly larger amounts of money than they did last year.

MR. FOUTS: It is hard to add to that list. Focusing on market dynamics, what we are seeing this year is a greater appetite for risk, whether it is taking shorter terms for power purchase agreements, taking and financing merchant risk, and taking emerging market risk and foreign exchange risk. There has been a noticeable move by the capital markets toward accepting higher risk. That is partly because the returns just are not there for the investors. People are having to move up the risk spectrum to get the returns they need.

MR. CHAUDHRY: So a lot of liquidity in the market. People are taking more risk. Let’s move to M&A tends and then get into some of the trends on debt and financings. Ted Brandt, what was the deal volume for M&A transactions in the power sector in 2014?

Discount Rates

MR. BRANDT: I did a bit of research and found four different numbers. I thought the most solid number was a Bloomberg New Energy Finance report that pegged last year’s M&A volume at $9 billion. It is still early to have a definitive view on 2015, but we think trends are up. There is an awful lot of inventory that should trade between now and the end of last year. Bid rates are continuing to compress.

MR. CHAUDHRY: What kind of metrics are buyers in this liquid market using to buy these assets? What kind of valuations are you seeing?

MR. BRANDT: I can’t speak to fossil fuels as well as other panelists. There is a dearth of to-be-built, fully-contracted wind farms, but if you have one, we have seen unleveraged after-tax discount rates over a 30-year pro forma falling in the last year to below 8% after what had been six to seven years of seeing bids come in between 8 1/2% to 9 1/2%. For solar, rates had been between 7% and 8% unleveraged after-tax on a 30-year pro forma, but they are now moving closer and closer to 6%.

MR. CHAUDHRY: Jon Fouts, what do you see for gas-fired assets?

MR. FOUTS: Gas-fired assets are slightly higher, probably in the 8% to 9% range. For yield cos bidding on renewable energy assets, particularly where the yield co has incentive distribution rights, we have seen discount rates bid even a little lower than what Ted said. A sponsor buying assets can justify taking a lower internal rate of return on a project that it plans to roll into a yield co with IDRs because it will get some of the valuation back as the IDRs move into the high splits. How some of these assets are being bid in some ways defies the physics of finance.

MR. PROSKIN: There is a lot of inexpensive private money chasing long-dated, contracted infrastructure. Whether it is gas-fired power plants, pipelines or other forms of infrastructure, you do not need yield cos as bidders to see nice valuations.

MR. REDINGER: Add to that that we are seeing a lot more activity from the Canadian pension and infrastructure funds. The Canadians are becoming very aggressive in pursuing these kinds of assets. While the Canadian infrastructure funds used to demand 12% and 13% returns, they are competing directly with yield cos at lower yields. The point is there is a lot of money driving this train.

MR. CHAUDHRY: Are the valuations you mention for operating assets and development assets? How do people price construction risk?

MR. PROSKIN: Buyers are not discounting the price once a project is under construction. They take risk as if it were already operating.

MR. BRANDT: I would agree with that. I think the bigger price point is whether the project has a long-term offtake contract.

MR. REDINGER: Last year, we saw projects still under development with power contracts trading at $89 a kilowatt. They are trading at north of $100 a kilowatt today.

MR. CHAUDHRY: Michael Proskin, are these all contracted assets? Is there a market for merchant assets and, if so, how do the valuations differ from contracted assets?

MR. PROSKIN: There is a market for merchant assets. However, the yield cos have not been as interested in them, and you lose some of the other infrastructure players who are not looking for commodity risk and are investing long-dated, hold-it-forever-type money.

MR. CHAUDHRY: How do valuations differ?

MR. PROSKIN: They are a couple of hundred basis points higher on an IRR basis than contracted assets.

MR. CHAUDHRY: Jon Fouts, you said the valuations are defying the physics of finance. What is driving that? Is it the competition from yield cos?

MR. FOUTS: Part of it is just the liquidity in the market. People are stretching for returns in any asset class and it filters through the system. There used to be a difference between what public investors in yield cos were willing to pay for assets compared to what the private investors would pay. Yields are compressing. That is one of the reasons why M&A activity is up.

Another reason is it is hard to construct a picture from a macro perspective that is more favorable than today, whether it is gas prices, interest rates, liquidity. A lot of our clients on the sell side are asking themselves whether it makes sense to hold assets and are being really thoughtful and disciplined about it. It is hard to construct a scenario where asset values will get better in the next 12 to 24 months. It is really hard.

MR. BRANDT: I would add that not only is it tough to see valuations improving from where they are today in dollar terms, there are also a lot of investors who own dollar assets that they translate back into euros and, with the euro down 35%, this is just a great time for a number of European asset owners to sell. The valuations look good in dollars, but when they are translated back into euros, the sales price is a home run.

MR. CHAUDHRY: Who else in addition to yield cos is buying these assets? Is it basically a domestic play or do you see money coming in from Asia and Europe?

MR. BRANDT: I will speak to renewables. There is interest from all the sectors, but it varies by type of asset. If you are bringing operating assets to the market, the obvious buyers at this stage are the yield cos. The two big deals so far this year are the Atlantic Power deal that TerraForm bought and the Wind Capital deal that Pattern bought. Both sets of assets were heavily bid and the yield cos won, but if you look at something like a hedged merchant wind deal or a to-be-built wind project that still needs a significant amount of tax equity, we are still seeing the Europeans, the EDFs of the world, be competitive. There are fewer Asians. NextEra is still doing a deal here and there.

MR. FOUTS: I agree. The Europeans are struggling with the lack of growth in Europe. They are looking for opportunities in the US. The big change is we do not see the bids from the Asians that we did 24 months ago.

MR. CHAUDHRY: Except, Michael Proskin, you still see them in LNG, right?

MR. PROSKIN: Yes. The Asians are still bidding on projects that produce things the Asians want. They see a benefit to owning interests in such projects rather than just being the offtake.

Financing Trends

MR. CHAUDHRY: Let’s move from M&A to financing trends. I read a report that said in the first quarter of 2015, project finance debt volume was down 11 1/2% compared to the first quarter of 2014, down from $8.7 billion to $7.7 billion. And the number of term loan B deals that closed in the first quarter was down from seven last year to two this year. Tom Emmons, how do you reconcile all the liquidity that you say there is in the market with these figures?

MR. EMMONS: I guess everybody can quote different databases. I am not sure the source of your numbers.

MR. CHAUDHRY: I got them from the internet. [Laughter.]

MR. EMMONS: Then they must be true. [Laughter.] In the project finance market, a 10% swing is statistically insignificant because it is such a lumpy market. So my internet source, IJ Online, shows an increase in volume from $11 billion at this time last year versus $18 billion driven by LNG and renewables. Conventional power is down. The number of deals is down from around 50 last year at this time to around 40, which leads to a higher average deal size.

MR. CHAUDHRY: Andy Redinger, you look like you want to add to that.

MR. REDINGER: I agree that a 10% drop is insignificant. The drop may be due in large part to the smaller number of refinancings. Everyone who might be driven by falling interest rates to refinance has already done it. The reason why there are fewer term loan B transactions is banks are stepping in and taking that role in place of the institutional market.

MR. PROSKIN: Another reason that volume is down in the term loan B market is new regulatory requirements facing Wall Street have changed the nature of the product that can be brought to market.

Merchant Projects

MR. CHAUDHRY: Okay, but there has been a spike in the number of merchant deals that are coming to market in PJM. I can think of four such projects quickly. How many merchant megawatts do you see being added in PJM?

MR. REDINGER: I think there are 18 plants under development in PJM on the gas side. I don’t know how many megawatts, but it is a significant number.

MR. CHAUDHRY: Are lenders concerned about this volume? Will it lead to lower electricity prices? Will we see a repeat of what happened in the 1990s when too much merchant gas-fired capacity was built within a short period. Tom Emmons, why will things turn out differently this time?

MR. EMMONS: It is a matter of supply and demand. I remember 1999 when people were saying we have to do merchant because that is all there is to do. By 2003, the effect of that was obvious. There were lots of write offs. We are not looking to finance gas-fired merchant projects ourselves.

MR. REDINGER: I do not think it is a question of whether these deals get financed in the bank or the capital markets. It is the hedge market. That market is not deep enough to do 18 deals.

MR. CHAUDHRY: How many do you think will get done?

MR. REDINGER: It is hard to find a hedge even today. It is hard to say.

MR. CHAUDHRY: So if you are a financial advisor to one of these gas-fired projects, and Andy, you are a financial advisor on at least one prominent one, what do you advise in terms of developing a merchant gas deal in PJM? Go for it? Or the market is too frothy?

MR. REDINGER: The project I am advising is early. It should be in commercial operation in September. The market for our project is still open. My advice is to move as fast as you can.

MR. CHAUDHRY: Most of these projects are getting financed today in the bank market as opposed to the term loan B market, correct?

MR. REDINGER: Yes. The bank market is offering more favorable terms at the moment. The banks have gotten more aggressive on pricing.

MR. CHAUDHRY: Until last year, there were really no merchant deals that were getting financed in the bank market. They were all term loan Bs. Jon Fouts, when did banks start taking merchant risk again?

MR. FOUTS: I think it goes back to the liquidity point. We have seen just a tremendous bid in the market, and so we pass it on to the investors. I can’t really point to a single point in time or a catalyst that has driven it. It is just an outgrowth of the momentum in liquidity.

MR. REDINGER: I am not sure it is the same type of merchant project that we saw 16 years ago. You have in many cases heat rate call options that provide runway for the loan. There are an awful lot megawatts of coal supposed to retire, which these assets in PJM will replace in many cases. If you compare the numbers of new capacity under development to what the coal gurus say will shut down, we are actually short on capacity.

You have a capacity market in PJM that should provide us a bit higher capacity payments than we had in the past. We will know a lot more by July or August. It is not quite as gloom and doom as that whole thing from the late 1990’s of “Let’s just build megawatts because megawatts equal earnings equal higher stock prices equal more megawatts.”

MR. FOUTS: There have also been some developments in the hedge side of things in terms of what are able to do as an industry. Maybe the hedges are shorter, but you can do puts. You can do future call options on hedges. That technology is not new, but I think financiers have gotten more comfortable with it. It preserves the upside for the equity. There have been some pretty creative innovations in how hedges are structured.

MR. REDINGER: It is not a stretch to think that these new merchant plants will be dispatched first and will force other plants out of the market. It does not take a huge leap of faith to conclude they will operate 100% of the time. These are some of the factors that are causing banks to get comfortable with financing them.

MR. CHAUDHRY: Is there enough capacity in the bank market to finance all of these projects?

MR. REDINGER: It is a lot of projects.

MR. CHAUDHRY: If they get hedges, is the bank market there for all of these projects?

MR. FOUTS: I don’t know if it is there for all of them. There is definitely a first-mover advantage. A lot of them will get financed under current market conditions. You do not want to be the last guy when the music stops.

MR. CHAUDHRY: All of these projects we just talked about are in PJM. Merchant deals have been done in ERCOT. Are there other markets that are ready for merchant financings: New England, for example?

MR. FOUTS: New England, PJM and ERCOT are all attractive for merchant. It gets pretty skinny after that.

MR. CHAUDHRY: Has the financing closed on any merchant plant to date in New England? I get that the Footprint Salem Harbor project was quasi-merchant. Anything else?

MR. FOUTS: Nothing that I can talk about. We are working on a couple right now.

MR. CHAUDHRY: Tom Emmons, there have not been any merchant solar financings, correct?

MR. EMMONS: I have not seen any.

MR. CHAUDHRY: Is anyone considering doing merchant solar or is that just out of bounds?

MR. EMMONS: We have not been asked to look any merchant solar projects.

MR. REDINGER: I don’t want to give my merchant speech, but I say this all the time. Our bank lends merchant all the time, but just in other industries. I get on my soap box internally every day. Listen, we lend merchant to industrial companies, to shoe companies . . . . We don’t require McDonald’s to pre-sell their hamburgers when we make loans to them. [Laughter.]

MR. CHAUDHRY: I understand, but do you lend merchant to solar?

MR. REDINGER: I’m working on it. [Laughter.]

MR. CHAUDHRY: You will do merchant shoes, but not solar?

MR. REDINGER: I’m working on it. [Laughter.]

MR. BRANDT: We have a Texas merchant solar deal in the market currently and, unfortunately, with gas prices rolling down, it is about $3, maybe $4, out of the money. A little bit of a blip and it would be in the money, so we think the market is there. There is no reason that Texas wind hedge deals work and solar deals do not. Solar is correlated better with load, there is no marginal cost, and capital costs have been coming down dramatically.

Warehouse 2.0

MR. CHAUDHRY: I want to go back, Andy Redinger, to some of the trends you talked about in your introduction. You mentioned warehouse 2.0. What is warehouse 1.0 and how is 2.0 different?

MR. REDINGER: Warehouse 1.0 is just a more efficient way to finance. Instead of doing project financing for individual projects, you basically pool them and create one debt facility where you can save on legal costs. You create . . .

MR. CHAUDHRY: Why would you want to do that? [Laughter.]

MR. REDINGER: I’m not sure. One facility. It is basically the same thing we are doing on an individual basis. We will lend 80% of cost, and we do not require a take out from a yield co because if the lender is not taken out, then the debt converts into a permanent loan and becomes like any other project finance loan. It will amortize over the life of the power purchase agreement. That is basically what a warehouse facility is. We get comfortable maybe doing a little bit less diligence. We get comfortable getting paid on one facility.

With warehouse 2.0, the advance rate is 90% rather than 80%, and it is 90% of the takeout expected when the yield co buys the assets from the warehouse, which is typically at a higher price than cost. The effect is to finance more than 100% of the cost to construct in some cases. That’s where things are headed. It is just an “ask” at this point. We will have to see what gets done.

MR. CHAUDHRY: Are there any leverage constraints?

MR. REDINGER: Nope. We are lending against the projected metrics for the project after it is in operation. This can lead to an advance rate that is higher than cost. However, we want at least 10% equity during construction even if the numbers suggest the project could support more debt.

MR. FOUTS: The couple that we have worked on have a restricted payments basket that would be something like two or two and a half times the debt service coverage ratio before the equity can start taking money out.

MR. BRANDT: So what is driving this? Why is there pressure to go from warehouse 1.0 to 2.0? Is it just competition among institutions? Liquidity? It is not as if the yield co will end up with any better price.

MR. FOUTS: The “ask” is there. The banks have the liquidity. We get comfortable with the risk and some of the specific credit metrics. And then a lot of it is that the yield cos want to put some assets off to the side so they can manage growth. It is early days still. I think we will see the next variation very soon with portfolios of emerging market assets.

MR. CHAUDHRY: Tom Emmons, are you buying into this warehouse 2.0?

MR. EMMONS: It is a reaction to the strong economics of some projects. It is a high-quality problem to have situations where a buyer will pay more than the cost to construct. So yes, we will lend against firm take outs if the residual risk is a construction risk. We are very happy with construction risks. Of course, then there are fine points like whether the full fee goes to the developer upfront or does it get paid at the end? Again, it is a high quality problem.

Back-Levered Debt

MR. CHAUDHRY: Let’s talk about holding company loans. Andy Redinger, you told me earlier that holdco loans are a new trend in the market. There has been a significant increase. What is driving it?

MR. REDINGER: Frankly, the reasons are the clients are offering up capital market business and the market is maturing. Developers that used to be developers with a bunch of projects are turning into real companies. Real companies usually have a revolver up top and a separate working capital facility.

MR. CHAUDHRY: Holdco loans enable a company to finance a portfolio of projects with a single loan as opposed to individual project financings. Tom Emmons, are you seeing much project-level debt with tax equity or has the entire market moved to back-levered debt that is behind the tax equity in the capital structure?

MR. EMMONS: The demand for back leverage is increasing. One of the reasons is that tax equity is scarce, giving it more market power to demand unleveraged projects.

We as lenders — and this is post-COD — are being pushed to do back leverage. This, in turn, means that the developers are pushing the tax equity investors to agree on a structure where there is enough predictable cash flow going to the developer to support back leverage.

Another reason for the move to back leverage is that many of the new projects in places like Texas and Oklahoma have high capacity factors, and the tax equity component of very these energetic wind projects is huge, giving the tax equity investors more ability to drive the capital structure.

MR. CHAUDHRY: Do you still see any project debt that is senior to tax equity?

MR. EMMONS: There are very few projects where post-COD senior debt coexists at the project level with tax equity, very, very few.

MR. CHAUDHRY: Is failure to agree on forbearance terms an additional stumbling block?

MR. EMMONS: It is as simple as tax equity wants us out of the project, and so we have to move upstairs. And since they are scarce and increasingly driving the capital structure in the very energetic projects, we and the sponsor figure out how to provide leverage, but it is one level up.

MR. CHAUDHRY: When you go one level up, you do not have any security on assets, correct?

MR. EMMONS: We have a security interest in the membership interest of the sponsor, and there is a negative pledge on the assets of the project.

MR. CHAUDHRY: So you have an unsecured project as far as the lender is concerned. What is the pricing on these back-levered loans? That is the part that surprises me.

MR. EMMONS: There is a premium because the debt is farther away from the assets. The premium depends on the tenor. It depends on whether there is a PPA or a hedge. It depends on the leverage. It is usually between 50 and 100 basis points.

MR. CHAUDHRY: Andy Redinger, I have heard a much lower differential.

MR. REDINGER: I am not going to argue that. [Laughter.]

MR. CHAUDHRY: What have you seen, Ted Brandt?

MR. BRANDT: I think Tom has described the market accurately. I do not think we have seen a leveraged wind deal for a while, other than a section 1603 or an investment tax credit deal. There are rare investment credit solar deals with leverage at the project level. Because liquidity is so vast, we are seeing some other banks that are not KeyBanc or Rabobank and that are less disciplined offer tighter spreads.

MR. CHAUDHRY: Some of the recent pricing from these back-levered loans has been as low as 1 5/8ths over LIBOR.

When you have back leverage, what kind of skin-in-the-game do developers still need to have? You have tax equity providing a large share of the capital cost of the project, and then you have back leverage on top of that. Do the two combined cover 100% of the project cost or do the back-levered lenders still require some equity?

MR. EMMONS: That is another high quality problem. If the economics can support more than 100% financing, given those different components, that is a great project. We would like see the sponsor still have at least some equity. It is a matter of negotiation.

MR. REDINGER: We like to see some equity, both during and after construction.

MR. CHAUDHRY: How much?

MR. REDINGER: We have been inside 10%. It really depends on the project.

MR. BRANDT: In wind, because the capacity factors are increasing and the capital costs are falling, we have been seeing about 70% of the capital structure coming from tax equity, leaving about 30%. The back leverage will cover something like two thirds of that.

LNG

MR. CHAUDHRY: Let’s move to LNG for the last topic. Michael Proskin, there was a recent Moody’s report that was pessimistic about the prospects for future LNG projects. Do you agree with that view?

MR. PROSKIN: The report was interesting. As commodity prices have changed, the home run of $5 or $6 of free money has gone away as oil prices have fallen from $100+ to $60 a barrel. What you see is more parity between LNG prices at Henry Hub and in international markets like Japan.

What this means is that there is no room for 20 LNG projects. The ones that are already financed and under construction will be built. There will be more projects beyond those, but I think you can count them on one hand.

The key is an offtake contract. We have talked to some offtakers in Europe and Asia who are still looking to sign deals. There have been new filings in the last few days for expansions of existing facilities. But it will all come down to whether there is an offtake contract. Anyone who is not already far along in negotiating such a contract will have a hard time securing one in this market.

MR. CHAUDHRY: So no new contracts beyond what is already far along in negotiations.

MR. PROSKIN: There have been some pretty high-profile examples of contracts that were not fully inked, but that were heads of agreement and that have been deferred. We have seen projects that one would have thought would have already announced an LNG offtaker that have not done so yet. At the same time, there is less urgency in many cases. A few years ago, the thought was that one had to sign up a whole train. Now trains are securing financing without the full output being under contract.

MR. CHAUDHRY: The ticket sizes for these deals by individual lenders, as Tom Emmons talked about earlier, are just staggering. People are bidding $500 million up to $1 billion per lender, right? And some of the large LNG deals — Freeport, Corpus Christi — were widely oversubscribed. How much was Freeport oversubscribed? Four and a half times?

MR. PROSKIN: Sounds right.

MR. CHAUDHRY: Corpus Christi was looking for $11 billion and that was oversubscribed multiple times also.

MR. PROSKIN: Correct.

MR. CHAUDHRY: Do you see that trend toward oversubscription continuing on the remaining financings?

MR. PROSKIN: I think it comes back to the point that we have all been talking about, the current liquidity in the market. If there is a good project with a long-term contract seeking financing, the banks will show up in force. There is a lot of money looking for good credits.

MR. CHAUDHRY: If you take just Freeport and Corpus Christi, that is about $20 billion of mini-perm debt that will have to be refinanced in the bond market. Jon Fouts, do you think the bond market will be interested in refinancing $20 billion in bank debt in the next couple years?

MR. FOUTS: Yes. I am probably not the best person to ask, but based on conversations with our capital markets team, the market today is pretty robust.

MR. CHAUDHRY: Michael Proskin?

MR. PROSKIN: I think the market will be there. I think for project paper you probably do not want to do it all on the last day. Cheniere had a pretty good template with its Sabine Pass financings where the debt was taken out in increments over time. It should be possible for these other projects to refinance it over the course of the seven-year mini-perms.

MR. CHAUDHRY: You mentioned seven-year mini-perms. I thought that was the norm in the commercial bank market, but NextEra managed to borrow 18-year debt on Silver State South. Some of the Japanese banks had been lending long term all along, but now European banks are doing it, too. Are tenors back to long tenors or are we still in a mini-perm market with short tenors?

MR. EMMONS: I think it depends. We try to stay under 10 years. Some banks certainly are going longer than they did before, but that is only part of the market. I do not think it is a larger trend.

MR. FOUTS: You have a lot more liquidity at the mini-perm level than the 18-year level.

Audience Questions

MR. CHAUDHRY: We have time for a few audience questions.

MR. CIRINCIONE: Guy Cirincione with Siemens Financial. What are typical tenors and coverage ratios for back-levered debt on wind farms?

MR. EMMONS: The tenor will depend on the terms of the operating agreement. It really depends on the pattern of projected cash flow. It could be effectively a mini-perm loan. If the cash flows are predictable for 18 or 20 years, then it would be a mini-perm loan just like you would structure on a senior debt basis, but probably with a couple of notches higher coverage than you would have if the debt were at the project level.

MR. MULLENNIX: Stephen Mullennix with SolarReserve. If there is less than 10% real sponsor equity, how are the banks looking to handle asset management over the medium and long term?

MR. FOUTS: We are looking to third parties rather than the sponsor to operate.

MR. EMMONS: You usually have an equipment manufacturer who will effectively run the equipment. That is certainly true in wind. It is