CHICAGO - The Chicago Infrastructure Trust has begun negotiations with private partners for plans to finance energy upgrades to as many as 141 pools operated by the Chicago Park District and Chicago Public Schools.
The trust has also launched an open bidding process to possibly establish a Property Assessed Clean Energy program. It would "enable government, not-for-profit, and commercial sector building owners to perform energy and water efficiency as well as renewable energy upgrades to their buildings by leveraging the city's existing property tax collections mechanisms," according to trust documents.
Like the pools proposal, the trust received an unsolicited proposal to establish a PACE special assessment program permitted under the city's home rule status.
The city would collect incremental assessments on the property tax bills of building owners who choose to opt-in to the program. Those assessments would go to third-party financing sources in repayment of their investments in the upgrades.
"With a PACE program in operation, property owners will be able to increase their property value while lowering operating costs by accessing lower cost, longer-term [20 years] capital to finance their desired upgrades without using their own balance sheet," documents read.
The trust documents report 25 active commercial PACE programs nationwide with more than $72 million in funding approved and another $250 million in the works.
The trust will accept proposals until June 26 and recommends that proposals include at least one financial partner capable of financing PACE transactions.
"Interested financial partners should indicate whether they are willing to finance PACE projects through traditional debt and/or more novel methods," such as variable-payment energy services agreements, power purchase agreements, leases, or performance contracts.
The trust received four bids on the pool projects after conducting an open bidding process this spring, according to a spokeswoman. The trust initially received an unsolicited proposal to upgrade the aquatic centers. That led to the open bidding process.
Contractor proposals were required to include at least one financial partner capable of financing the transaction, preferably in an off-credit and off-balance sheet structure such as the energy services agreement used on the trust's first transaction.
The trust board recently gave staff clearance to conduct negotiations with its preferred bidders and perimeters for the deal.
As with its first financing, the trust would leverage savings expected from the financed work to repay private investors. The deal could run as high as $50 million depending on how pools are upgraded.
The trust closed in April on a $13 million private placement to fund energy retrofits for 60 city Department of Fleet and Facility Management buildings.
Mayor Rahm Emanuel proposed the trust as an alternative financing vehicle for the city that he said could raise $200 million for energy retrofit upgrades in a series of financings, but it's been slow going.
For the Fleet and Facility Management transaction, the trust originally solicited investors on a $27.5 million loan with a potentially longer term at 4.7% or lower. It had few takers as investors were worried about the risk without city backing, and the city settled on a 15-year loan at half the size at 4.95% with Bank of America Merrill Lynch. Piper Jaffray Inc. was placement agent.
The city still accomplished its goal of borrowing for energy efficiency projects with a tax-exempt financing that kept the loan off its balance sheet and does not put taxpayers on the hook for repayment.
The trust's first deal marked only the second tax-exempt ESA transaction to date. Legal advisors believe the tax exemption is permitted because the trust is designated as the on-behalf issuer for the city and serves as the ESA project sponsor or owner and issues tax-exempt debt on behalf of the city. If the savings are not achieved, energy contractors managing the projects must cover the gap.
The model has some similarities to a revenue bond in that creditors' claims are based on the pledged revenues, but energy contractors guarantee the savings and the funds flow through the trust.