Biofuels Digest’s 5-Minute Guide to Loan Guarantees: who got ’em, what’re they doing?

The Digest’s Take

Overall, loan guarantee activity has totaled $891 million to date — pretty small potatoes in the context of more than $32 billion in loan guarantees made available for clean tech projects. But not nothing, as the saying goes.

As far as track record — overall, pretty darn good. One already now repaid, three projects open, three in construction, three still in development — one failure, Range Fuels back at the very dawn of the program. The overall default rate – assuming total write-off of Range Fuels – would come in at 7.2 percent, well under the 10 percent originally envisioned by Congress in funding the loan guarantee program. While any project failure is a setback, the program was explicitly set up to advance technologies towards commercialization that could not find affordable conventional financing — to solve the “Valley of Death” problem.
Put it in the context of overall project finance default rates – according to Moody’s in a study of 3,533 project finance loans between 1983 and 2010, the overall default rate (in terms of projects, not dollars) was 7.9 percent.

You might also put performance in the context of student loans — another government program that aims at filling the gaps where conventional financing is unavailable. On a dollar basis, as of 2010, 17.3 percent of student loans have gone into default. In fact, 13.4 percent of the loans have gone into default within three years of the commencement of repayment. With more than $1 trillion in guaranteed student loans, it appears that there have been $2703 in student loan defaults for every dollar of bioenergy loan defaults. Or, $173 billion, compared to $64 million.

But the Moody’s numbers are quite incredible in their own right — a comparative default rate compared to commercial sector loans — in fact, its suggestive that the sector ought to be far more financeable than it is perceived in some quarters to be.