EFTA00309982.pdf

TO: FROM: JOHN DIZARD SUBJECT: PROPOSAL FOR PARTICIPATION IN L PROJECT DATE: JANUARY 29, 2013 I have done further investigation of then.. project, currently sponsored b ISS that was introduced to us by the di people. I will be sending the people a separate letter in response to their proposal, but before that, I wanted to share some candid obser vations with the team. 1. As we all tended to think from the beginning, the project in its current form, with Sias the developer, is not likely to work. The only way it could be made to work would be if the property were to be acquired at a steep discount from its notional book value, in effect from the lender group that has a lien on it, and if it were to be taken over by an exper ienced and credible developer who could execute a reworked development plan. Intrigu ingly, it might be possible to meet both conditions. 2. The lender group consists of three firms, led by SOS has already renegotiatedallitwo year $50mm corporate credit facility twice. The facility matures in September. The lenders are currently being paid with equity inS. S does have other assets, but I would hazard a guess that the lenders would be willing to release their lien on the egaproject in return for some cash or credible paper that would be a significant discount to the current book value. Thefillapproject has already been substantially written down. 3. I asked FIRPOMONSIMIalble if he could recommend any prospective geothermal developers who might be interested in making such a distres sed geothermal property work out. He referred me to tarns the' of S I, LLC, with whom he has worked in the past. glikiplmaliSIS has an operating geothermal project in the Salton Sea area in California, wilaThis facility, a BMW project, achieved Commercial Operation Date °SS 2012.Salso has operations in a and erevapbut I was particularly impressed that the company had managed to get a new geothermal operation onstream in California. 4. In compliance with our NDA with'. i.e., not disclo sing the name of the developer or the name of the project, I conducted a phone discussion with severa l principals ofd including MU. ands, the EVP and Managing Partner. I asked about wheth er they might be interested in a distressed development in the Rae started his career 4O years ago in the ass Without my prompting, he suggested that he and the firm had been looking at a distressed development in the Geysers (i.e., without saying sold. project), and that they had given considerable thought to how it might be made to work. I said that while we had not been geothermal developers or financiers, and did not hold ourselves out as geothermal experts, we did know how to structure projects, both financially and legally, so that the interests of all the participants would be continually aligned through the complete timeline, and that our EFTA00309982 , record of ethical, consensual partnerships spoke for itself. He indicated that ........and its principal investor, ear/a...1.S. could be interested in partnering with a private equity firm experienced in energy development. I made clear that we would require private- equity-industry-standard returns to matte it work for us, and that we would not want to spend excessive time screening this project or looking for other prosp ective developers. He accepted this point. He also said that the project was not easily integrated with ape existing Geysers operation, and that we would Not Likely get into a bidding war with a • S. flassaid that the issue in the Geysers area was not whether the resou rce, that is, the steam, was there, but what the decline rate would be, and could the declineste be offset at a reasonable cost and risk by water re-injection. He also said that the current distressed project was possible not sized correctly, and that that PPA would have to be renegotiated, but that he believed this could be made to work, depending on the acquis ition price. 6. sinces has been studying the Geysers for four decad es, if he and his partners are willing to show some financial as well as technical and managerial comm itment, they could be the developer-partners this project would require. 7. Sand the others agreed to come back to me by the end of this week with a formal expression of interest in further discussion, based on an exchange of NDAs. I believe they have some fairly well developed ideas on how this would have to be restructured. If 'iou agree, we could do the ADA exchange, hear them out, and decide, with the consent of 0, whether we should contact i with the understanding that this would be, in effect, be the buy-out, at a discount, of the lender's Interest. We should not partner with Sr anis a dead end, I would politely tell thalepeople that we would put this on -4. the back burner. **, • S • ft ' 0- •3 4 S • f EFTA00309983