Project financing in limbo amid SVB turmoil
Financing vehicles for clean energy projects are in limbo following the turmoil surrounding Silicon Valley Bank's closure.
Why it matters: There are hundreds of billions of dollars in project financing deals at stake, and a lot more questions than answers about what the future holds.
State of play: Project financing deals were separate from and structured differently than traditional credit lines. The monies were provided to climate tech and clean energy companies via Silicon Valley Bank's "hardware-as-a-service" feature.
- The hardware-as-a-service funding was designed for companies that needed a large amount of capital to fund construction of physical assets like manufacturing facilities or clean energy plants.
- The initial, large funding was made at the outset of the deal, and the remainder of the funding was to be paid out over time as the companies met previously agreed upon milestones.
The intrigue: It is unclear what happens to those agreements now.
- No one can say how companies will access the next funding tranches, and it's also unclear how and to whom the companies will pay back the initial tranches.
Be smart: The initial tranche of financing, meant to get projects off the ground, is enough to help companies weather the turbulence for now, several CEOs tell Axios.
What's next: Investors have told Axios they see three primary paths forward for companies that have project financing contracts with SVB.
- The first and best-case scenario is the financing vehicles are assumed by another financial institution as part of a sale and the contracts remain the same. There may be a slight delay as the contracts are moved over to another servicer, but at the end of the day things largely remain the same.
- The second is that those contracts are assumed by another financial institution, but the terms change. Whether that's to liquidate the assets entirely, and on what time frame, remains an open question no one has the answer to.
- The third is that no one offers to buy the project financings and the FDIC continues to oversee and allow access to those funds under its own authority, which may result in a slight delay on project construction but ultimately means the projects get built.
Yes, but: Project financing is an entirely different debt vehicle than a traditional line of credit and may not be appealing to institutions looking to immediately liquidate SVB's remaining assets.
- Because the financing is tied to completion of an asset in the physical world, it has real value. However, those physical assets — wind turbines, manufacturing equipment, for example — aren't liquid.
- They could be bundled with SVB's other credit lines for a sale to another financial institution, or could be sold off separately.
What we're watching: Funds from government programs like the Inflation Reduction Act are due to start hitting bank accounts later this year.
- The prospect of lucrative policy incentives could make project financings more appealing to investors that otherwise may have passed.
The bottom line: The number of open questions around the large-scale ramifications of the SVB shutdown are growing by the day.