financial tsdhdrhurmoil clapp

7/30/2019 Financial Tsdhdrhurmoil Clapp

1/18

Implications of Financial Turmoil for High Capital ProjectsJuly 2009

John D. ClappManaging DirectorGlobal Power Sector Specialist388 Greenwich Street, 34th FloorNew York, NY 10013Tel - 212-816-8588

Fax - 646-291-1879


2/18

Executive Summary

Market capacity remains an issue for large projects:

Withdrawal of many banks from project bank market

Project finance bank market universe is considerably smaller than 24 months ago

Some European banks retrenching in home markets

Capital allocation remains a major constraint

Relationships and returns driving deal selection

Capital constraints reducing hold positions, requiring more banks to syndicate large projects Ticket sizes more typically in the $30-$50mm range, not the $80-$100mm clubs of the past

More lenders = potentially greater execution risk, extended time to close

Corporate bond market has stabilized after a spike in spreads at the end of 08

Remains an attractive market for utility level finance of major CAPEX programs

Potential rating agency concerns if anticipated debt metrics deteriorate due to projected CAPEX spend

Private placements remain open as an option to project sponsors, but project size is limited

DOE loan guarantee program could relieve some of the capacity issues in the market and allow a larger number ofconventional projects to go forward than would otherwise occur particularly those of size

Capital markets remain challenged for large projects (>$500mm) despite tightening credit spreads. SomeUS project developers now waiting on the release of the Stimulus Act (ARRA) US DOE loan guaranteeprogram rules before accessing the capital markets with large projects

1


3/18

Trans-Allegheny Interstate Line Company

Transaction Overview

The Project is divided into five segments, each of which can beindependently constructed, energized and placed into service, with theexception of two segments located in Virginia; total cost is estimated at$1,079 million

The Project receives stable and predictable cash flow during and postconstruction; asset is entitled to earn a rate of return for 50 years afterconstruction while O&M, taxes and depreciation are fully recoverable as perFERC declaratory orders

During construction, project costs are funded 1/3 from equity contributionsand 2/3 from the Credit Facilities; at completion, equity contributions arerequired from the Sponsor to establish a debt to equity ratio of 50:50

The Credit Facilities benefit from structural features such as limitedavailability on a per-segment basis prior to state sitting permits beingissued and flexibility to abandon certain segments if state permits cannotbe obtained

Investment Highlights

Strong and experienced sponsorship in Allegheny Energy with liquidity ofmore than $760 million as of March 31, 2008

A valuable and strategic transmission asset with strong federal and regionalsupport

Substantial free cash flow of $205 million during the construction periodfrom 2008 to 2011; avg/min DSCR over the term of the Credit Facilities is3.72x/2.40x

Low construction and operation risk

A strong credit counter party in PJM, one of the largest and mostestablished markets in the US

Conservative capital structure post completion, TrAILCo will have 50%leverage and Debt to EBITDA ratio of 3.4x

Syndication

The Credit Facilities were oversubscribed with approximately $750 millionin total commitments

9 banks participated at the Agent (>55 million) and Co Agent level (>50million) while another 8 participated at the Manager (>35 million) andLender level (>20 million)

Borrower: Trans-Allegheny Interstate Line Company(TrAILCo), a special purpose entity created by

Allegheny Energy to develop, construct, own andfinance a 215 mile 550 kV transmission linespanning Pennsylvania, West Virginia and Virginia

Facilities: $530 million Senior Secured Construction Facility

$20 million Senior Secured Revolving Facility

Sponsor: Allegheny Energy, Inc

Maturity: 7 Years

Amortization Bullet

Pricing: L + 187.5 bps (Yr 1-5); L+ 200bps (Yr 6-7)

Commitment Fee 50bps per annum; 37.5bps if more than 50% of theCredit Facilities are drawn

Security: A first priority perfected security interest in all equityinterests in TrAILCo

Closing Date: Aug 15, 2008

Citis Roles: Coordinating Bank

Joint Bookrunner and Joint Lead Arranger

Administrative Agent

US$ 530 Million Senior Secured Construction FacilityUS$ 20 Million Senior Secured Revolving Facility

2


4/18

Noble Environmental Power - New York 08

Transaction Overview

Noble New York 08 Projects comprise three separate wind parkswith an aggregate generating capacity of 330 MW, utilizing 220General Electric 1.5 MW SLE wind turbines. Total project costs

were approximately $835 mm

NY 08 Projects are located in Chateaugay, Altona and Wethersfield,New York, in close proximity to Nobles existing NY 07 wind parks

Tax Equity: GE invested $222 mm Class A Equity at TermConversion. In addition, GE will make additional equity contributions(PAYGO payments) over the first ten years as the wind parksgenerate Production Tax Credits (PTCs)

Energy Hedge: Citigroup Energy Inc. entered into a 10-year EnergyHedge with the Borrower, fixing the price on the 1-year P95 energyproduction of the NY 08 Projects, approx 79% of P50 volume

REC Contracts: NYSERDA (NY state agency) entered into 10-yearfixed price contracts to purchase 95% of the Renewable EnergyCredits (RECs) produced by the NY 08 Projects

100% of projected cash flows are un-contracted in Years 11-15

Investment Highlights

Largest wind financing ($741 mm) completed in U.S. to date

Integrated financing and commodity hedging transaction, with Citi

leading the financing as Admin Agent and Jt Bookrunner andproviding 100% of the 10-Yr f ixed-for-floating Energy Hedge

Merchant tail in Yrs 11-15 provided Noble with incrementalleverage. Approx 55% debt-to-cap, $1,283 per kW at COD

Construction delay risk during a PTC expiry year was mitigatedthrough a flexible Class A Equity agreement and with incrementalcontingent equity and sponsor support

Transaction successfully syndicated during ongoing civil inquiryconducted by the New York State Attorney General regardingbusiness practices of wind developers in upstate New York

Borrower: Noble Environmental Power 2008 Hold Co, LLC

Facilities: $632 mm Sr Sec Construction & Term Loan Facility(converted to $412 mm Term Loan at COD)

$109 mm Letters of Credit & Cash Collateral Loans

Sponsor: Noble Environmental Power (majority owned byCCMP Capital Advisors and Canada Pension Plan)

Maturity: Construction + 15 Years

Amortization 15-year sculpted amortization post-COD with aTarget DSCR of 1.00x based on 1-year P-99 wind

Pricing: L+175 (Yr 1-4); L+187.5 (Yr 5-8); L+200 (Yr 9-10);L+225 (Yr 11-12); L+250 bps (Yr 13-15)

Commitment Fee 50 bps per annum

Security: First lien on all assets, accounts, and equity interestsof the Borrower & the Project Companies

Financial Close: June 30, 2008

COD: April 3, 2009

Distributions: 1.2x DSCR Yrs 1-10. 1.4x DSCR Yrs 11-15

DSR Account: 6 mos Yrs 1-10. 12 mos Yrs 11-15.

Citis Roles: Administrative Agent and Joint Bookrunner

Energy Hedge Provider (Citigroup Energy Inc.)

Wind Study / IE: Garrad Hassan America, Inc.

US$ 632 mm Senior Secured Construction & Term Loan FacilityUS$ 109 mm Letters of Credit & Cash Collateral Loan Facility

2008 Americas RenewablesDeal of the Year

-Project Finance International andProject Finance Magazine

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5/18

Capital Markets Overview - Then & Now

Credit Market IndicatorsSummary Observations

Interbank lending rates(LIBOR) continue to fall as

interbank credit concernsdiminish

Treasury rates rising fromhistoric lows

High grade bond marketcontinues its strong start to2009, reflecting investor

demand for low-risk assets

High yield bond market hasalso improved fromOct/Nov, with BB creditsnow seeing market access

Equity markets remaindepressed, complicatingcapital raising forcorporates and financialsneeding to recapitalize

Gas and oil decoupling

Low gas depressing peakpower prices, affecting newproject economics

(1) February 1-28, 2008 vs. December 1-31, 2008 vs. June 1-26, 2009

February 1, 2008 December 1, 2008 June 29, 2009

3 Month LIBOR 3.10% 2.22% 0.595%

10 Year US Treasury 3.59% 2.73%. 3.48%

5 Year Swap Spread 75 bps 87 bps 37.7 bps

High Yield Index (Yield) 10.0% 19.6% 9.91%

Investment Grade CDX Index 107 bps 260 bps 89 bps

Investment Grade Debt Issuance(Monthly)1

$55.0B $19.5B $36.1B

VIX Volatility Index 24.0 68.5 27.0

Dow Jones Industrial Average 12,743 8,149 8,529

S&P Index 1,395 816 927

Crude Oil ($/barrel) $88.96 $49.28 $71.49

Natural Gas $8.75 $6.64 $3.94

4


6/18

Project Finance Market Update

Bond Market

Investors are selectively open to transactions in defensivesectors, including toll roads and utilities

Market receptivity to private equity-sponsoredtransactions challenging compared to corporates

Given the supply overhang in the investment grade corporatemarket, demand for project paper likely to come more fromthe traditional long-term, buy-and-hold investors, such as thelife insurance companies and pension funds and less frommoney managers and hedge funds

Investors remain risk-averse and prefer plain-vanillatransactions to more highly structured financings

BBB-/Baa3 is being treated with skepticism, withBBB/Baa2 receiving significantly better reception

U.S. Private Placement (USPP) market more receptive toproject deals compared to the public markets

The USPP market has demonstrated resilience in thismarket turmoil

USPP investors comparatively more skilled in analyzingproject structures

As with the loan market, USPP investors have becomemore stringent on covenants and leverage

Given limited capacity, we expect to see more multi-tranchedeals targeting two or more markets simultaneously

General concern on overall environment, focus on high gradecredit quality

Crisis in financial sector has put focus on counterparty risks

The market remains selectively open, but conditions are challenging.

Bank Market

Many project lenders have significantly scaled back lending activitiesor exited the market

Many non-US lenders have suspended North American act ivityand are focusing on home markets

Increased cost-of-funding and return-on-capital hurdles

L+[350] bps area represents current market pricing for middle-of-the-fairway deals (tighter for renewables)

5-6 bps per $1 mm of commitment on long-tenor deals

Shorter tenors, to meet return-on-capital requirements

5-7 years, or shorter (e.g. 1-year construction loans)

Amortization schedule can be on 15 yr + basis

Limited appetite for credit stories

Banks are in a position to be choosy, given supply-demandbalance for capital

Focus on existing client relationships

Limited underwriting appetite

Virtually all sizable deals being executed on a club basis.Minimal retail demand

Transactions greater than ~$350 mm encountering marketcapacity issues

Uncertainty on cost-of-funding index rate LIBOR floors notuncommon

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7/18

Targeted Project Finance LendersEven as some major players exit the Project Finance market, there are still several large banks that are stillactive in providing bank debt financing.

French banks remain relatively well-capitalized relative to many of their European counterparts

Broad focus on power & energy, infrastructure, and renewables Top 3 (BNP, Calyon, SocGen) active, but maintain focus on lead arranger roles

Japanese banking sector remains among the strongest in the global financial community

Increased focus on Project Finance from largest Japanese lenders BoTM, Mizuho, and Sumitomo Mitsui

Canadian banks also remain well capitalized and active

Scotia remains an active top-tier lender with a focus on power & renewables with an increased focus on relationships

EDC has the ability to participate in size ($100 mm) for deals with Canadian content. Canadian sponsorship alsosupports ability to participate, though Canadian content is a key driver

German banks have a primary focus on renewables, particularly among landesbanks

HVB, Deka, KfW, NordLB, and LBBW remain relatively well capitalized and expect active PF participation in 09, though

on tighter terms, wider pricing, and with greater scrutiny on credit and relationship returns

Continued activity among largest Spanish lenders BBVA and Santander with increased focus on arranging roles,pricing and credit

ING is relatively well-capitalized relative to Benelux counterparts Very active in 08; expecting to be major PF participant in 09, with greater focus on pricing, credit and relationships

Dexia regaining momentum in the project finance space

In the US, Union Bank of California and Co-Bank remain active in project finance along with Citi

6


8/18

Recent Comparables

Sponsor/Project Date Facility

Size

($mm) Tenor Spread Tier

Upfront

Fees

In MarketSenior Secured Term

Loan$275.0 5 yrs Not disclosed

A Wind Deal In Market Senior Credit Facilities $230.0 10 yrs300 bps (drawn)

100 bps (undrawn)Joint Lead Arranger (50mm) 300 bps

EMEClosed

6/26/09

Senior Credit Facilities $207.2 8 yrs 387.5 bps

enXcoClosed5/29/09

Senior Credit Facilities $100.0

MidlandCogeneration

Venture

Closed

5/28/09

Senior Credit Facility A

Senior Credit Facility B(non-amortizing)

$275.0

$140.0

7 yrs9 yrs

350 bps (Tranche A)

400 bps (Tranche B)

Tickets of $15, $25, and $50million

150-225bps

NextEraClosed

5/20/09

Senior Credit Facilities $343.0 8 yrs300 bps (drawn)

100 bps (undrawn)

TBD TBD

GennConnClosed4/27/09

Senior Credit Facilities

Equity Bridge Loans

$295.0

$240.0

5 7 yrs2.25 yrs

350 bps (drawn)

75 bps (undrawn)

40mm

25mm

250 bps

200 bps

First WindClosed4/22/09

Senior ConstructionFacility

$376.4 1 yr325 bps (drawn)

75 bps (undrawn)

Joint Lead Arranger (50mm)

Senior Managing Agent(40mm)

Lender (25mm)

300 bps

200 bps

150 bps

Despite the challenging environment in the credit markets, there are several project finance energytransactions that have recently closed or are currently in the market.

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9/18

27

23

31

36

56

29

21

11 11

20

27

21

55

59

20

46

22

62

0

15

30

45

60

75

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Amount($bn)

2008 2009

State of the Corporate Bond Market

Issuance Pace remains brisk

Jan - Nov 2008: $201.7 bnJan - Nov 2009: $263.9 bn

*Issue total through June 19, 2009; Source: SDC

Secondary Trading Liquidity Has Began To Normalized

ReflectYear-end

Source: Bloomberg (Primary Dealer Trading Volume); as of June. 17, 2009

10YR A Industrial Cost-of-Funds Have Remained Flat

Source: Citi Syndicate

And Market Access for BBBs is Strong

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

Jan-06 Jul-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09

Yield(%)

10-yr UST

A Rated All-in Cost

0

2

4

6

8

10

12

14

16

18

2022

24

26

28

1-Dec 29-Dec 26-Jan 23-Feb 23-M ar 20-Apr 18-M ay 15-Jun

Week Beginning

IGC

orporateVolume($Bn

)

'BBB'-rated

'A'-rated or better

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

Jul-01 Jul-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09

Volume($Billions

)

Average Weekly Trading Volume Per Day

Quarterly Moving Average

8


10/18

Private Placement Market UpdateFollowing the upheaval in the global credit markets experienced in 4Q 2008, the private placement markethas returned to normalcy amid a host of issuers seeking to raise capital to satisfy funding needs and tobolster liquidity.

Source: Private Placement Monitor & Citi. Data as of June 22, 2009

Q2 2009 Q1 2009 Q4 2008 Q3 2008 Q2 2008 Q1 2008 FY 2008

New Issue Volume $4,680 $5,467 $1,113 $9,692 $10,858 $4,909 $26,572

US Volume (%) 36% 54% 87% 69% 59% 72% 66%

International Volume (%) 64% 46% 13% 31% 41% 28% 34%

Number of Issues 31 29 17 39 53 31 140

Unrated Issues (%) 55% 62% 53% 68% 65% 70% 66%

Average Deal Size $151 $189 $65 $249 $205 $158 $190

Current Private Placement Market Developments & Analysis

CurrentConditions in2009

Following the temporary pull-back experienced by the majority of the investors in late 2008, the market is presentlyopen with approximately 80% of institutions actively pursuing new investment opportunities

Most institutions have cash available and have returned to the traditional areas of focus, namely credit quality,covenant structure and pricing, as the major drivers of investment decision-making

A normal transaction flow has re-emerged, with attention focused on solid credits

With the renewed demand from the bulk of the market, a favorable imbalance has surfaced whereby the considerablebut modest transaction flow thus far in 2009 is contributing to an undersupply of issuance

Outlookfor 2009

Investor activity is expected to remain meaningful but nonetheless somewhat tempered from historical levels

Private placement investment programs are, on average, expected to remain flat to the previous year

Following the trend in the public market, credit spreads have rallied materially f rom the peak experienced earlier in theyear, although remain relatively wide when compared with historical levels

Notwithstanding the improving tone, issuers are encouraged to tap the market when access is available, due to thelooming supply awaiting to approach the public and private markets

2008

2009 YTD Volume Breakdown($ in billions)Traditional Private Placement Issuance($ in millions)

0.4

3.2

2.7

1.3

0.5

3.1

2.5

4.2 4.2

2.3

4.2

0.4 0.40.3

1.9

1.1

3.2

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2009 2008

9


11/18

DOE Loan Guarantee Program


12/18

Original DOE Loan Guarantee Program

The focus of the original program was and continues to be providing government-backed financing for energy projects thatavoid, reduce or sequester air pollutants and employ new or significantly improved technologies such as Coal

Gasification, Carbon Sequestration, and Nuclear Enrichment

The emphasis on innovative technologies significantly limited the universe of applicants

The Final Rule regarding the policies, procedures and requirements for this program were not officially published until 2007

The decision to process applications via target date solicitations, as opposed to processing applications as received is

recognized as one of the inefficiencies in the original program

A Credit Subsidy Cost, calculated as the NPV of the DOEs estimated losses on the loan minus the fees it receives is paid

by the Project before receiving the loan(1)

Projects whose applications are accepted are offered government guaranteed financing from the Federal Financing Bank(FFB) at a rate of approximately T+[25-50] bps

To date, only one major project has received a loan guarantee under the original guidelines

Solyndra Inc. solar panel manufacturing facility $535MM loan guarantee March 20, 2009

Original DOE Loan Guarantee Program

The original DOE Loan Guarantee Program (Section 1703) was created by the Energy Policy Act of 2005

and authorized the Secretary of Energy to issue guarantees for certain qualifying projects.

(1) In February, the Secretary of Energy announced plans to restructure this fee so that it is payable over the life of the guarantee.10


13/18

DOE Loan Guarantee Program as AmendedThe American Recovery and Reinvestment Act of 2009 (ARRA) greatly expands the DOE Loan Guarantee

Program through the addition of Section 1705 to help finance upcoming alternative energy projects.

Updated DOE Loan Guarantee Program(EPAct Section 1705)

Original DOE Loan Guarantee Program(EPAct Section 1703)

Eligible Projects

Both commercial and advanced renewable energysystems including, Wind, Solar, Geothermal, andIncremental Hydroelectric

Electric power transmission projects

Advanced biofuels technologies (cellulosic ethanol, etc.)

Multiple solicitations for various innovative technologiesthat employ new or significantly improved technologies

including carbon sequestration, nuclear enrichment, andadvanced transmission technologies

Requirement that the technology is not a Commercial

Technology

Credit Subsidy Cost $6 Billion allocated under the ARRA to cover the Credit

Subsidy Cost for qualifying projects Credit Subsidy Cost to be paid by Borrower prior to loan

issuance(1)

Timing Loans to be reviewed and guarantees to be issued on a

rolling basis once program regulations are f inalized and

approved by the OMB (anticipated to occur in mid July)

Various application deadlines depending on solicitationand project type

Generally, length of application process has beengreater than one year

Program Size

Credit Subsidy Cost reflects expected losses to the DOE,so if the DOE assumes a 10% loss (which may be a highassumption for commercially viable projects), $60 billion -$100 billion of guaranteed loans can be issued

Approximately $42.5 billion in funds authorized throughfive solicitations

Guarantee Process

For commercial renewable energy projects and small

transmission projects, the DOE intends on using aDelegated Lender approach in order to expedite the

implementation of the program (outlined on the followingpage)

For advanced renewable, large scale transmission, andadvanced biofuel projects, the DOE intends to review theprojects themselves and issue guaranteed loans throughthe Federal Financing Bank

Applicants complete Part I and Part II applications andDOE reviews applicants, conducts due diligence, andissues guaranteed loans through the Federal FinancingBank

(1) In February, the Secretary of Energy announced plans to restructure this fee so that it is payable over the life of the guarantee.11


14/18

Backbone Transmission Solicitation

Backbone Transmission (end of June 2009) 1705 Program (Stimulus Act)

DOE intends to launch a solicitation under the new 1705 Program to target backbone transmission (backbonetransmission to be defined in the solicitation)

Projects do not have to be innovative, but must be able to start construction by September 30, 2011

While this solicitation is under the 1705 Program, the backbone transmission projects will have access to 100% loanguarantees using the Federal Financing Bank (FFB) similar to the current 1703 loan guarantee program, but CreditSubsidy Cost (CSC) will be covered by DOE

Similar to the current 1703 program, applications will need to be submitted by the sponsor to DOE as will be specified inthe solicitation

Solicitation will be open ended with new application filing periods staggered every 45 days DOE intends to create some semblance of competition with set filing periods, but maintain overall rolling

application process

Applications are intended to be more summary in nature, but final applications will still require:

Letter rating from one rating agency

IE report

Financial model

Other reports and documentation as specified in solicitation While open ended, DOE believes there is a practical deadline of December 31, 2009

Under the 1705 program projects must begin construction by Sept. 30, 2011

DOE believes that backbone transmission applicants will need to conduct an Environmental Impact Statement (EIS)as part of the NEPA process, which may take up to 18 months to complete

Backbone transmission projects will need to begin the EIS process by end of 2009 to complete the process in timeto meet the construction deadline in 2011

As a part of the EPAct 1703 and 1705 Programs, the DOE plans on issuing three new solicitations in thecoming weeks. The first of these solicitations is expected to target backbone transmission projects.

12


15/18

Re-Issue of Innovative Renewables/Transmission Solicitation

Re-Issue of Innovative Renewables/Transmission Solicitation (mid-July 2009) 1703 Program

DOE intends to re-issue the current 1703 Renewable/Transmission solicitation to allow applicants to take advantageof the Stimulus Act loan guarantee benefits, specifically DOE coverage of the CSC

DOE is increasing the size of the program per Congressional mandate from $10B to $18.5B

Congressional increase to make renewables program equal in size to nuclear reactor program

Increased funding available for all current and new solicitation applicants

As a 1703 program:

Projects must include innovative technologies

Can be renewable power generation, industrial facilities, or transmission

100% loan guarantees available if funding through the FFB

Application requirements similar to current Innovative Renewables/Transmission Solicitation:

Letter rating from one rating agency

IE report

Financial model

Other reports and documentation as specified in solicitation

Similar to the backbone transmission solicitation, the re-issued innovative renewable/transmission solicitation will be

open ended with new application filing periods staggered every 45 days

NEPA review requirements: DOE believes that an Environmental Assessment may be sufficient for most projects ratherthan the more extensive EIS.

Unlike the 1705 programs, there is no construction start deadline, meaning that the solicitation will be open until closedby DOE

DOE also expects to work with State and Local Development Agencies to co-lend to smaller renewable and industrialprojects under this solicitation and will begin a separate process to identify those agencies and their capabilities/pipelines

The DOE is expected to expand its Innovative Renewables/Transmission Solicitation under the 1703Program.

13


16/18

Conventional Renewables Solicitation

Conventional Renewables solicitation (mid-July 2009) 1705 Program (Stimulus Act)

DOE intends to launch a solicitation under the new 1705 Program to target conventional renewables and non-

backbone transmission projects (to be defined in the solicitation) Projects do not have to be innovative, but must be able to start construction by September 30, 2011

Under the 1705 Program, the DOE intends to utilize the private capital markets and the existing banking infrastructureto streamline the application process and tap into the guaranteed (and unguaranteed) debt markets to financeconventional renewable and non-backbone transmission projects

Credit Subsidy Cost (CSC) will be covered by DOE

100% loan guarantees using the Federal Financing Bank (FFB) will not be available to conventional projects, loanguarantees expected to be limited to 80% of eligible project debt (with maximum debt to cap of 80%)

Eligible Lenders (to be defined) will be responsible for originating projects with sponsors, structuring the

transactions to market, and applying to DOE for a loan guarantee on behalf of the sponsor prior to financial close

Citi fully expects to be an eligible lender

A Program Manager at DOE will be assigned to each transaction to log the deal and interface with the lenderand sponsor as the process moves forward

DOE is relying on the lender for the majority of the necessary diligence and credit approval work prior tosubmitting the loan guarantee application to the DOE Credit Review Board (CRB) for a loan guaranteecommitment

Applications will be accepted on a rolling basis (no 45 day periods as in other solicitations), however, the CRB onlymeets monthly to make loan guarantee decisions

Once a transactions is ready for DOE review and CRB submission the process to receive a committed loanguarantee is expected to take 45-60 days to complete

The DOE is expected to issue a Conventional Renewables solicitation under the 1705 Program in mid July.

14


17/18

Delegated Lender ApproachIn order to quickly and efficiently implement the new Loan Guarantee Program, the DOE has expressed itsintent to use a delegated lender approach for the projects seeking guarantees that implement commercial

renewable energy technologies.

Under a delegated lender approach, the DOE would leverage bank experience and due diligence capabilities in theproject finance space ultimately creating a public/private risk sharing arrangement

Qualifying projects would work with Eligible Lenders, which have been pre-approved by the DOE, to apply for a guarantee

The sponsoring financial institution would analyze the projects credit, structure the financing, conduct required due

diligence, and apply for a loan guarantee on behalf of the project and sponsor

If the DOE chooses to accept an application, it would guarantee a portion (Covered portion) of the total project debt

leaving a non-guaranteed portion (Uncovered portion) to be held by the financial institution to ensure and alignment ofinterests and that the credit analysis is conducted thoroughly

The amount of the Covered debt relative to the total project debt is still under consideration but is expected to be

approximately [80]%

Project Capital Structure

Sponsor Equityand Tax Equity

Project Level

Debt

Project Debt

DOE GuaranteedPortion

(Covered)Up to [80]%

Non-GuaranteedPortion

(Uncovered)

Uncovered portion expected to be held by sponsoring financialinstitution on market terms

Covered portion expected to be held by sponsoring financialinstitution or sold to investors in the private market (bank orbond) on market project financing terms and rates similar toother government guaranteed debt

15


18/18

efficiency, renewable energy & mitigation

In January 2007, Citi released a Climate Change Position Statement, the first US financial institution to do so. As a sustainability leader in the financial sector, Citi has taken concrete steps to address this importantissue of climate change by: (a) targeting $50 billion over 10 years to address global climate change: includes significant increases in investment and financing of alternative energy, clean technology, and other carbon-emission reduction activities; (b) committing to reduce GHG emissions of all Citi owned and leased properties around the world by 10% by 2011; (c) purchasing more than 52,000 MWh of green (carbon neutral) powerfor our operations in 2006; (d) creating Sustainable Development Investments (SDI) that makes private equity investments in renewable energy and clean technologies; (e) providing lending and investing services toclients for renewable energy development and projects; (f) producing equity research related to climate issues that helps to inform investors on risks and opportunities associated with the issue; and (g) engaging witha broad range of stakeholders on the issue of climate change to help advance understanding and solutions.

Citi works with its clients in greenhouse gas intensive industries to evaluate emerging risks from climate change and, where appropriate, to mitigate those risks.

2009 Citigroup Global Markets Inc. Member SIPC. All rights reserved. Citi and Citi and Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughoutthe world.

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