Given the current economic conditions, companies are preserving cash. Cash preservation provides protection against ongoing economic uncertainty. Institutional investors are paring back discretionary investments, as entire organizations are working to make cuts in spending that will help shore up their long-term viability and competitiveness.
Blue Rock is working with institutional investors to help preserve capital, and create more immediate cash on their balance sheet, by helping them make and manage tax credit investments in solar energy projects. We understand it may appear counter-intuitive – how does making an investment create more cash on the balance sheet immediately?
The reasoning is as follows: companies that continue to be profitable through the pandemic will accrue tax liabilities. The tax liabilities will be a percentage of each company’s earnings and will be paid out quarterly. However, Blue Rock originates tax credit investments in solar energy projects that support capital preservation by converting a non-discretionary tax liability into an investment that generates a positive cash flow event in the year the investment is made.
In year 1 of the investment, an average solar energy tax credit deal structured by Blue Rock returns 11% more in tax savings than the cost of the investment. For example, assume Company A estimates they will incur $111M in tax expenses in 2021 (and for simplicity assume Sec. 38(c) does not apply). Instead of making those payments of $111M, Company A could invest in a solar energy tax credit transaction that will generate $111M in tax savings in 2021. In current market conditions, the average cost to make this investment is approximately $100M. And so, Company A could save $11M in tax expenses in 2021, and keep that cash on their balance sheet, by making an investment in a solar energy tax credit deal.
For companies seeking to learn more about how Blue Rock can help them preserve capital by making solar energy tax credit deals, please Contact Us.