What is a Conditional Commitment?
My name is Jigar Shah, and I'm the Director of the Loan Programs Office at the Department of Energy. Today we're going to go through another frequently asked question: What is a conditional commitment?
In broad terms, a conditional commitment is a term sheet that's fully approved by the Department of Energy and the partners that we have around the federal government, including the Office of Management and Budget, and in some programs, the Treasury Department.
The process of actually getting to a conditional commitment requires us to:
- Receive an application.
- Review that application.
- Have outside parties help us complete the due diligence on a project so that we believe that project meets a reasonable prospect of repayment.
- And then it results in a term sheet that can be 30 pages long.
The term sheet is not a simple step to get through. It is a very complicated step to get through. But it does represent a term sheet, not a closed loan. Once that term sheet is approved by the U.S. government, it sets down requirements that the applicant actually has to complete, which are called “conditions precedent,” in order to close.
So, for instance, an applicant might say, we need to complete all the rest of the permitting required to get this done. Or we need to figure out how to get through NEPA. Or we have to get permission from a couple of other private sector entities or public entities, like a town or a county, before we can actually close the loan.
So there are two steps here: (1) there's a conditional commitment, which is really a very detailed term sheet; and then (2) there's actual loan documents, which have to be closed before we can disperse funds.