Atlantic Structures and Places the First-Ever Tax Liability Insurance Policy

Source: 5/20/2024, Location: North America

Atlantic Global Risk LLC ("Atlantic"), a leading specialist insurance brokerage firm specializing in transactional risk solutions, is pleased to have placed the first ever tax liability insurance policy supporting a landmark transaction in the carbon capture and sequestration ("CCS") sector. This achievement underscores our commitment to providing innovative insurance products and supporting the energy transition.

In response to the enactment of the Inflation Reduction Act, our client, the owner of a large facility in the Midwest, recognized an opportunity to utilize the financial incentives set out in Section 45Q to achieve environmental objectives and superior economic performance. Over the 12-year lifespan of the 45Q credit period, the CCS project will sequester millions of tons of CO2 into a secure underground geological formation via a Class VI well.

The 10-year policy provides comprehensive protection against potential losses with a limit of liability of $785,000,000.

To finance the substantial investment required to develop the CCS project, our client entered into a tax equity "partnership-flip" structure covering a portion of the 12-year life of the Section 45Q tax credits. Additional financing for the balance of the 12-year credit period is expected to be secured through further tax equity transactions and/or tax credit transfers, depending on which financing structures provide optimal outcomes in the future.

Since the 45Q tax credits underpin the key economics of the project, the client recognized that the potential loss of all, or even just a portion of, the credits posed a significant risk given its indemnification and guarantee obligations. Although the tax equity investor did not require tax insurance due to the strong credit rating of our client, our client recognized that a robust tax insurance policy backed by A-rated insurers provided substantial value by protecting against loss of the tax credits.

Atlantic worked closely with nearly all of the tax insurance underwriters in the North American market to ultimately design and place the first-ever 45Q tax insurance policy, protecting our client against possible issues with qualification of the facility for the credits, transferability of the credits, and Recapture. As a result of Atlantic's thoughtful, diligent approach and a collaborative underwriting process with trusted insurance partners, Atlantic was able to provide its client with a truly market-leading solution.

The policy, which was placed in February of this year, has a coverage period of 10 years and an aggregate limit of liability of $785,000,000, providing comprehensive protection against potential losses, safeguarding our client's investment and commitment to sustainability.

The Minneapolis-based energy practice of Brown & Brown Insurance is the broker for placement of casualty lines of insurance for the client and was instrumental in orchestrating a comprehensive insurance package and smooth placement process.

Gulf Oil and Gas
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