Brick taxpayers would be be protected in the case that the developer of solar farm at the former French’s Landfill site is unable to pay debt service on the solar array, for which the township borrowed $23 million, the township’s bond counsel told officials and residents at a council meeting Tuesday night.
After the explanation by attorney Matthew D. Jessup of the McManimon, Scotland and Bauman law firm, the council voted to return $462,668 to Brick Standard, LLC, the redeveloper of the former Superfund site. The $462,668 was being held in an escrow account as a performance guarantee that the solar array would be properly constructed. The array began producing energy in October, so the township was obligated to return the money, which belongs to Brick Standard, Jessup said.
Earlier this month, the council held back the money after resident George Scott questioned whether the township would be protected in the event that Brick Standard defaulted on loan payments related to the project. Brick Standard is obligated to pay the entirety of the $23 million it cost to build the array, but the township borrowed the money since it qualified for a lower interest rate than a private enterprise would have. Scott’s questioning centered around the scenario that would unfold if Brick Standard defaulted on its debt, leaving the township responsible for paying back the bonds.
“The public was told that no monies were going to be paid to the developer until we were even across the board,” Scott reiterated Tuesday night. “Where is the guarantee of the $23 million?”
Jessup said taxpayers are protected in numerous ways, the most significant of which is the collateral of the solar array itself. Brick Standard “pledged the membership interest of its company over to the township in the event that there is a failure to pay, including the solar array,” he said. “It’s an asset that cost more than $23 million to build, and if you took it over, you’d have energy for free, plus the asset itself.”
Moreover, Jessup said, there is a guarantee of $2.1 million from PNC Bank that is in the name of Brick Township should Brick Standard, which is 90 percent owned by the Iron State Development firm, ever defaults. That money would bridge the gap between any default and the foreclosure on the array, which would end up generating money for Brick Township. Additionally, Jessup explained, the township would claim unsold solar renewable energy credits, or SRECs, that were held as assets by Brick Standard.
Additionally, as Brick Standard generates revenue from the solar farm, they are required to use a portion of it directly to pay down the debt. The company has already made its first payment; the next is due in October.
“Any proceeds they sell are obligated to go toward paying off the bonds,” Jessup said.
A default, Jessup said, is unlikely in the first place given that Brick Standard is 90 percent owned by Iron State, a large-scale development corporation that is using energy generated from the Brick site to their advantage via tax credits.
“If they were to default in year two, they would be walking away from $26 million worth of tax credits, all because they weren’t going to pay $2.1 million in debt service on a $23 million bond issue,” Jessup said. “It clearly puts them invested in the project, for a significant amount of money.”
Brick Township’s municipal government, as well as the Brick Township Municipal Utilities Authority, is purchasing power from the site at a discounted rate of 8.5 cents per kilowatt hour. Brick Standard also paid approximately $2.5 million to the township up front for use of the site.
A deal that – in hindsight – would have generated an additional $2.6 million did not come to fruition after change to the solar contract made in 2012 was never signed by then-mayor Stephen C. Acropolis. The contract change stated that Standard Alternative (now known as Brick Standard), the redeveloper, would pay off a township bond issuance at 4.5 percent interest. If the township was able to borrow the approximately funds required below that rate, Standard would have been locked into the fixed rate, and the township would have pocketed the excess.
Because that contract change was never signed, Brick Standard will simply pay the off the township’s bonds at their actual rate, causing Brick to miss out on $2,627,019 in revenue. At the time, Acropolis said he felt the contract revision put taxpayers at risk, since interest rates could have risen above 4.5 percent in the following two years and cost residents’ money. Ducey signed the revised contract when he became mayor in 2014, but legal counsel advised township officials that too much time had passed, and the mayoral administration had changed, thus nullifying the signature.