Alisha Soares – Marsh

The Inflation Reduction Act of 2022 is packed with tax incentives to stimulate renewable energy project development, with (i) developers now being able to transfer tax credits directly to unrelated tax credit buyers, (ii) a longer list of available tax credits, and (iii) a deeper pool of eligible technologies for these tax credits.

Expanding available incentives and new ways to monetize tax credits requires informed people who can explain the myriad details to eligible investors and the new pool of tax credit buyers. Among the subject-matter experts is Alisha Soares, now in her fifth year as senior vice president in the Transactional Risk Practice at Marsh, an insurance broker and risk management subsidiary of Marsh McLennan, the New York-based international professional services firm.

Alisha Soares | Marsh | Senior Vice President

“When I started at Marsh, the number of tax insurance underwriters and brokers was nearly half that of today,” Soares tells Vanguard from her home in Nashua, New Hampshire, where she lives after recently relocating from Manhattan and transferring to the Marsh Boston office. “There’s a lot of new talent coming into this space, and I’m excited to be part of an industry-leading team.”

Marsh certainly is at the forefront; the firm is active in more than 130 nations and recently released its Tax Investment Default Insurance offering in May, a first-of-its-kind method for expanding the pool of capital for investing in federal tax credits tied to U.S. renewable energy projects. This product, supported by several A-rated insurers and managing general underwriters, coincides with the growing number of Marsh clients buying tax insurance policies to safeguard their renewable energy tax credit investments.

That’s keeping Soares busy, the personable young woman promoting market awareness, preparing creative solutions, and often responding on the fly to legislative developments as a member of Marsh’s five-person tax insurance team.

Tax risk mitigation

As Soares explained, these tax credits were historically monetized via complex tax equity structures that had a limited number of market participants; however, following the enactment of the IRA (in addition to traditional tax equity financing), developers can now transfer credits to investors who do not need to take an equity stake in a project. This is potentially a win-win, as by transferring their tax credits, developers have a simplified means of garnering access to capital while buyers—typically corporate entity taxpayers—benefit through credits to offset their U.S. federal tax liabilities. However, in either scenario, the tax credits generated are not free from the risk that the IRS could successfully disallow some or all of the tax credits claimed by a taxpayer.

Tax insurance is a cost-effective risk management tool that offers protection for tax positions. It plays a significant role in providing confidence to developers, sponsors, financing/lender participants, and tax credit buyers that the intended quantum or value of tax credits generated from any given project will be achieved even in the event of a successful IRS challenge.

“We are frequently approached to provide sellers (i.e., project developers) and buyers in a tax credit transfer arrangement to assist in transferring tax liability risks to third-party insurers as a replacement for (or supplement to) recourse to the seller’s balance sheet,” says Soares.

For example, for a project that generates investment tax credits (“ITCs”), coverage is typically available for five broad categories of exposure: (i) eligibility and qualification (that the property will be respected as energy property); (ii) tax basis risk (i.e., the IRS will respect the appraised fair market value of a project and the allocation of tax basis to ITC eligible assets); (iii) the applicable amount of the tax credit rate (i.e., ensuring that the risk is eligible for prevailing wage and apprenticeship requirements and/or eligible for an increased tax rate via “energy community,” domestic content,” or a “low income” adder); (iv) structural risk (anything to do with the tax structure used); and (v) Section 50 recapture (protection against a reduction of ITCs during the five-year recapture period if the property is “disposed of, or otherwise ceases to be investment credit property”) during such time.

Each tax insurance policy is tailored to the specific needs of the project participants, the nature of the credit, the structure of the transaction, and the nuances of the project itself.

“We can place buy-side and sell-side (or dual) policies on a standalone, transaction-specific basis. However, we can also put together ‘umbrella’ solutions for the entire portfolio of projects to achieve economies of scale. Typically, a developer seeks an umbrella coverage to (i) protect the balance sheet against any historical tax credit risks to third-party financing parties or (ii) solicit best terms from tax equity and/or a tax credit buyer by already having coverage in place for its prospective project,” says Soares. “We often see developers, who in their early years comfortably took tax credit risk on the balance sheet, come back for an umbrella solution when their portfolio of projects significantly scaled up and therefore seek to transfer all or a portion of their tax credit risk to insurers.”

She’s energized

In May, Soares co-hosted and was among the panelists at the Novogradac Spring Renewable Energy Tax Credits Conference in San Diego, providing insight on tax risk mitigation and insurance to support the financing and monetization of renewable energy tax credits.

“The tax insurance space is very innovative,” she tells Vanguard. “In my prior roles, I identified tax risks in mergers and acquisitions that often impeded the transaction from closing or required seller indemnities and significant corresponding escrows that sometimes frustrated parties. While our discussion focuses on renewable energy, tax insurance has broad applications. It addresses these negotiation pain points in the M&A context, non-M&A transactions, or financing/tax credit transfer transactions by replacing or supplementing an indemnity/escrow with a tax insurance policy. Generally, tax insurance policies for US Federal income tax issues cost between two to four percent of the total limit procured, making it a cost-effective solution.”

She’s aided in this task by four other subject-matter specialists in transactional risk: Managing Directors Mark McTigue and Antony Joyce, and two other senior vice presidents, Patrick Browne and their newest member, Nika Antonikova. According to Soares, they have assembled large insurance programs using their collective experience in taxes, mergers and acquisitions, restructurings, banking, and energy in general, with their largest single tax insurance program reaching nearly $1 billion in limits. For her, it’s all part of a role that fits her personal and professional interests.

The right fit

Born and raised in New Hampshire, Soares earned a degree in political science from Fairfield University before graduating from Boston’s New England Law in 2013. She initially envisioned herself as a private or public environmental attorney. While that interest never dulled, it was augmented by her internship with the Massachusetts Department of Revenue during her last year in law school.

She recalls enjoying the problem-solving aspects of a state agency that manages Massachusetts state and local tax controversies. After passing the Massachusetts bar, Soares cut her professional teeth from 2013 to 2017 with KPMG, one of the Big Four accounting firms. This was followed by her role as a director of state and local tax mergers and acquisitions at Alvarez & Marsal, a New York firm noted for its work in turnaround management and performance upgrades for corporate clientele.

For Soares, her agenda at Marsh includes structuring insurance solutions and traveling for various client engagements, renewable energy conventions, and conferences.

“It’s here to stay,” she says about the green movement. “It’s rewarding to support the financing of renewable energy projects and see deals done. There is more and more buy-in and participation in getting these projects off the ground. I expect tax insurance to be a key risk management tool that continues to evolve to address the needs of all renewable energy project participants.”