Cornerstone Conversation: Richard T. Brandt, Marathon Capital

by Terrence Murray - December 13, 2010

Richard “Ted” Brandt co-founded more than 10 years ago, initially to advise middle-market power and energy companies and eventually solar, wind and other renewable energy companies. After years of sustained growth, partly supported by stimulus funds, Brandt is concerned that the sunsetting of green federal subsidies and the incoming, carbon-friendly Republican House majority, will result in more uncertainty for the renewable energy sector.

Green Energy Reporter: When did you launch Marathon Capital and why?

Richard Brandt: We launched Marathon Capital more than 10 years ago, in 1999, convinced that there was room in the power financing business for a firm like ours focused on serving middle-market power and energy companies. Back then, the U.S. power market was freshly deregulated and just about everyone was building gas-fired power plants. But while larger developers had little problem securing financing, Wall Street often overlooked deals below the $200 million mark. That’s the market my partners and I set out to serve when we launched Marathon.

G.E.R.: How did Marathon start advising wind and other renewable energy developers?

RB: Our renewable energy expertise stems from our initial work advising these middle-market energy companies. Back in 2006, when green investments started to pick up, both in size and scope, the conventional energy and power companies we were working with were very similar to wind or sun power developers. That expertise helped us become the  go to guys of sort for renewable energy companies looking for financing or M&A advisory work. It helped us land important mandates, including advising wind developer Greenlight Energy in its $125 million buyout by BP’s alternative energy unit, at the time one of the sector’s largest deals. Before that we also helped SunEdison raise $75 million for its first project finance fund.

It’s going to be very rough two years and I feel that with the changes in Washington there will be a definite shift toward oil and gas at the detriment of wind, solar and other renewables.

G.E.R.: Back in 2006 and 2007, could small, ambitious renewable energy developers easily secure long-term project finance debt?

RB: The two best words that best describe the market back then: “Irrational Exuberance!” Starting in 2006, developers big or small easily got their projects funded. There was lots of tax equity financing available as financial services company looked to offset their tax liabilities on their record profits. There was also an unbelievable amount of project finance debt and lots of mostly European companies looking for financing to develop projects and establish U.S. subsidiaries. In early 2008, Irish developer Airtricity sold itself to Scottish and Southern Energy for about $2.7 billion and its project portfolio was largely made up of merchant facilities not backed by long-term power purchase agreements. The transaction was a great result for the seller but probably wouldn’t happen today. Four years ago valuations of a renewable energy projects were largely based on their potential. Today a project’s value is largely based on a power purchase agreement; it’s a PPA-driven market.

G.E.R.: Over the past couple of years government funding has helped support the renewable energy sector through the global recession. Does the recent Republican take-over of the House signal the end of these subsidies?

RB: It’s going to be very rough two years and I feel that with the changes in Washington there will be a definite shift toward oil and gas at the detriment of wind, solar and other renewables. Already, the future of some key stimulus-funded programs, like the 1603 cash grants is uncertain, this at a time when large commercial banks are still nervous about lending. What’s likely to remain unchanged is the largely inefficient, short-term tax-based subsidy system, unfortunately at the detriment of suppliers, developers and off-takers. In a perfect world, we would put a price on carbon and we would establish some sort of federal Renewable Electricity Standard. Those two measures would help anchor the long-term certainty investors have been asking for and which has been lacking in the U.S.

G.E.R.: Over the past couple of years, a number of well-funded companies have acquired independent wind and solar developers. Do you expect that trend to continue?

RB: I’d be surprised if well-capitalized companies don’t continue to buy out smaller outfits struggling to fund their growth. The bellwether this year was the canceled First Wind IPO. This is a mid-size developer that’s well-run, well-financed company with 500 megawatts of operating assets and despite all of that, they still weren’t able to convince investors to fund their growth and had to cancel their IPO. The reality is that investors are in the business of buying cash flow, and right now, small and mid-size renewable energy companies like First Wind just don’t generate the sort of money investors are looking for. If companies like First Wind can’t raise capital on the public markets, an acquisition by a larger company becomes more than likely.

The interview was conducted and condensed by G.E.R.

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