On June 13, 2012, New York City announced that it has committed $5 million to create a loan loss reserve fund through the New York City Energy Efficiency Corporation in an effort to make it easier for buildings to convert from the heaviest heating oils to cleaner fuels. At the same time, the City announced that a number of financial institutions, including Chase, Deutsche Bank, Hudson Valley Bank, Citibank and the Community Preservation Corporation, have committed $90 million in private lending for such projects.
A loan loss reserve fund is a credit-enhancement mechanism intended to entice commercial financial institutions to lend capital at a lower-interest rate or with more flexible terms than they might do otherwise. A loan loss reserve fund provides partial risk coverage to third-party lenders in the event of a loan default by covering a specified amount of loan losses. This mechanism can motivate commercial financial institutions to offer energy finance products, broaden access to finance and lower interest rates.
The City’s initiative is intended to make financing for clean energy conversions more easily accessible to low- and moderate-income buildings. The City’s announcement was made at Eastchester Heights Apartments in the Bronx, which consists of 1,400 rent stabilized units located in 114 buildings across 5 City blocks. The buildings were recently converted to natural gas. Prior to the conversion, the buildings consumed nearly one million gallons of No. 6 fuel oil annually.