Energy Savings Debentures FAQs

1. What is an Energy Saving Debenture?​The Energy Saving Debenture is SBA-guaranteed leverage authorized by the Energy Independence and Security Act of 2007 (“Energy Act”) and can only be issued for the purpose of making “Energy Saving Qualified Investments”.  It is structured as a discount debenture similar to the Low and Moderate Income (“LMI”) Debenture.  The Energy Saving Debenture differs from the standard SBA-guaranteed debenture in several respects:
   • SBA does not intend to pool Energy Saving Debentures.  The Federal Home Loan Bank of Chicago (“FHLBC”) has agreed to purchase all Energy Saving Debentures and hold them until maturity.  Interest rates for this debenture will be determined by FHLBC on the draw date as a spread over the FHLBC's cost of funds.
   • The debenture is a deferred-interest debenture issued at a discount, requiring no interest payments or SBA annual charge for the first 5 years, plus the stub period between the debenture’s issuance date and the next March 1 or September 1 payment date.  (The stub period allows all Energy Saving to have common March 1 or September 1 payment dates.)   You may use the FHLBC’s Discount Debenture calculator to estimate the net proceeds you would receive if you were to issue an Energy Saving debenture.   It is located at the following address: http://www.fhlbc.com/Documents/sbacalculatorpage.htm.
   • The debenture is available in two maturities - 5 year and 10 year (plus the stub period). The 10 year discount debenture requires semi-annual interest payments and annual charge payments during the last 5 years of its term.
   • The debenture does not permit prepayment for a ‘lockout’ period of 12 months (plus the stub period) after issuance.  Thereafter, it permits prepayment in full, but only on March 1 or September 1 of each year. Thus, the actual period during which you cannot prepay may be from 12-18 months depending upon the length of the stub period. Prepayments after the lockout period can be made without a prepayment fee.

2. Who may issue Energy Saving Debentures?  Only SBICs licensed after September 30, 2008, are eligible to issue Energy Saving Debenture.

3. How do SBICs issue Energy Saving Debentures?  SBA will issue draw instructions describing how SBICs licensed after September 30, 2008 may draw leverage under existing leverage commitment for the purpose of issuing Energy Saving Debentures. Draw instructions will be very similar to those for the LMI debenture. Energy Saving Debentures will be available on an ‘as requested’ basis.  SBA has budgeted approximately $240 million for Energy Saving Debentures spread across all outstanding SBIC commitments issued through September 30, 2012.  If demand for the Energy Saving Debenture appears to exceed this budget, SBA may establish allocation procedures.  SBICs should contact their analyst if they intend to issue Energy Saving Debentures so that SBA may assess demand.

4. What is an Energy Saving Qualified Investment?  SBA’s final rule defines Energy Saving Qualified Investments under 13 CFR §107.50.  An Energy Saving Qualified Investment is generally defined as an investment made to a small business that is primarily engaged in Energy Saving Activities.  A small business is presumed to be primarily engaged in Energy Saving Activities if:
   1. The Small Business derived at least 50% of its revenues during its most recently completed fiscal year from Energy Savings Activities; or
   2. The Small Business will utilize 100% of the Financing proceeds received from a Licensee to engage in Energy Saving Activities.

Under certain circumstances, a pre-Financing determination by SBA is required, as described in the final rule.

5. What are Energy Saving Activities?  SBA’s final rule defines Energy Saving Activities under 13 CFR §107.50.  The following table provides a general reference table for SBICs to help determine whether or not the potential portfolio company’s activities qualify as Energy Saving Activities or if the potential investment requires a pre-financing determination.