Evolving Security Trends in Solar Project Financing

The current trend in solar power facility financing is for the lender to take a security interest in all of the borrower entity’s assets, but not a deed of trust covering the real property rights of the borrower.  Project lenders have determined that the collateral assignment of the site control agreement, whether a lease, easement of license, provides sufficient security in the event of borrower default.  In that case, the lender would step in to the borrower’s rights under the site control agreement.  Lenders are often also obtaining non-disturbance agreements from any senior financing on the subject property, and appropriate consents and estoppels from the site owner.  However, these agreements are proving easier to obtain from a senior lender and property owner when the subject property is not being encumbered by an additional deed of trust.  Senior lenders and owners also often acknowledge that the solar power facility is personal property and not a fixture, and disclaim any rights in the personal property.  Since the lenders are not obtaining a deed of trust, they are not able to obtain a lender’s title policy as there is no lien to insure. Lenders will still perform a title review on the property, however, and require the borrower to obtain an owner’s title policy to insure the site right.  The borrower’s rights under the insurance policy would be covered by the assets subject to the lender’s blanket security interest.