Medium Term Equipment Financing Solutions

Transcription

1 Medium Term Equipment Financing Solutions Presented to: Florida School Finance Officers Association Chuck Maguire, SVP Equipment Finance Specialist Banc of America Public Capital Corp Government Finance Geoff Culm, SVP Equipment Finance Specialist Banc of America Public Capital Corp Energy Services November 15, 2013

2 About Banc of America Public Capital Corp Business Model Banc of America Public Capital Corp (BAPCC), a wholly-owned subsidiary of Bank of America N.A., serves the needs of clients in the energy, healthcare, institutions and government markets, providing integrated resources and business capabilities under one organization. BAPCC, which includes Energy Services, Renewable Energy Finance, Healthcare & Institutions Finance, Government Finance, and Tax Credits, provides both taxable and tax-exempt financing solutions to states, municipalities and other tax-exempt institutions, as well as commercial and industrial companies. The team works closely with clients to develop solutions ranging from standard financings to highly structured transactions, each tailored to a client's unique needs and objectives. Line of Business Client Focus Market Coverage Deal Size Healthcare & Institutions Finance Multi-hospital systems, stand-alone hospitals, large physician groups, multi-specialty physicians groups, est. outpatient centers and hospital joint ventures (DIC s, ASC s, cancer centers, laboratories) and for-profit entities; Institutions: not-for-profit cultural, religious and civic organizations, private and public colleges /universities, private primary/secondary schools Geographic focus $1MM-$100MM Government Finance Governmental agencies and sub-agencies including states, cities, counties, K-12 school districts, special districts (ports, transportation, water, sewer, power and health), public colleges and universities Geographic focus $1MM-$100MM Energy Services State and local governments, federal government agencies, public education, public housing authorities, institutions, healthcare, ESCOs (Energy Services Companies), waste water treatment facilities, public utilities, cooperative utilities, commercial and industrial Geographic focus $2MM-$100MM Renewable Energy Finance Utilities, Independent Power Producers, project developers, equipment manufacturers, EPC contractors, municipalities, private equity and U.S. affiliates of foreign entities installing wind and solar projects Industry focus $20MM-$150MM Tax Credits Source of business (Originate): tax credit aggregators/syndicators, financial institutions (looking to sell) and developers; Investors (Distribute): banks, insurers, corporate and industrial entities Transaction/ Geographic focus $25MM- $100MM+ 2

3 Focus Areas for Discussion Introduction Analysis of current situation and needs for School Districts Tax-exempt leases and master lease Recommended general medium-term capital solutions Focus on 3 areas of capital needs: Transportation Digital Technology Energy Solutions Overview of Banc of America Public Capital Corp and Bank of America A powerful platform for your success 3

4 Typical Priorities of School Districts Continued successful implementation of goals and objectives Effective evaluation of ongoing equipment and fleet needs and requirements Promote excellence in staff achievement and development Maintain and upgrade vehicles and other equipment as well as facilities Lower equipment life-cycle operating costs Prepare for growth-related pressures Respond/address growth New facilities/refurbish and modernize existing facilities Recruit qualified staff (Diesel Mechanics) Increased need for equipment, facilities, and related assets Continue sound financial policies Successful management of operations and budget Conserve cash Manage energy cost Manage debt; conserve bonding capacity and capital Leverage fund balances and revenue sources Evaluate sound alternative financing opportunities 4

5 Financing Instruments

6 Government Strategic Capital Formation Commercial Banking Capital Markets Short-term capital Medium-term capital Long-term capital Operational needs Investment opportunities Long range strategy Draw notes/lines of credit Private placement issuances Public Market Issuances, Bonds, Typical Products BANs, TANs, RANs Liquidity facilities taxable and tax-exempt Leases, loans and bonds Mortgages, Real Estate Strategic Objective Bridge time gaps between revenue collections and expense Quick access to a cost effective source of capital Strategic capital formation to support long range plans for disbursements growth and tax revenue positions Manage maintenance & operational Funding for new investments Funding for new investments cash flows Refinancing existing debt Refinancing existing debt Product Objective Short-term/timing support for capital expenditures Equipment Financing: Match fund medium-term assets Match fund long-term assets / investments (infrastructure) with Support of remarketing of capital long-term capital markets facilities 6 21

7 Product Overview Government Finance Product Suite Structure Tenor Credit Rating of Issuer Typical Assets Typical User Products include taxable and tax-exempt appropriation leases (single funding or master lease line), lease purchase agreements, other assets secured debt financing such as loans or notes and operating leases years A or better Essential use assets such as transportation (incl. buses, rail, port equipment), technology, furniture and fixtures, energy equipment, waste/water/publics safety/public health/public facility, related equipment and select real estate Governmental agencies and sub-agencies including states, cities, counties, K-12 school districts, special districts (ports, transportation, water, sewer, power and health), as well as public colleges and universities 7

8 Master Lease Line Concept Combine Purchases to Save Time and Money

9 Assets A to Z BAPCC Government Finance IT Computer mainframe Data & network security systems e-911 systems e-learning (e-readers and tablet style computers) Infrastructure related to mobility and distance education (remote learning) Laptops, computers Lecture technology (audio, video, projectors) Software xxxx xxxx xxxx Transportation Ambulances Buses Fire trucks Fixed wing aircraft Garbage trucks Golf carts, bulldozer, forklift Helicopters Metro buses Panel vans Police cars School buses xxxxx xxxxx xxxx xxxxx 9 FF&E Astroturf Bleachers Bridges Cafeteria equipment Carpet Containers Copiers Elevators Fire hydrants Parking garage Parking meters Office furniture Police and security equipment Phone systems Refuse bins Scoreboards/signage Sewers Sprinkler systems Stereo/sound systems Storage racks Street lights Swimming pools Televisions Text books Toll booths Traffic lights Water coolers Zamboni machine xxxx x x Energy Equipment & Deferred Maintenance HVAC, Co-Generation, energy efficiency Renewable energy projects Energy Performance Contracting Utilities Sewer & Water Projects

10 What is a Municipal Lease? Installment sales contract which allows a municipal borrower to acquire essential Use equipment today and spread the cost of the equipment over a three, five or sometimes even a seven-year term Allows for acquisition of essential use equipment Three to 15-year terms Allows for a school district to have non-appropriation of funds protection Lender exempt from federal taxes on interest Lender tax benefits passed onto school districts in form of lower interest costs 10

11 Benefits of a Municipal Lease To meet on-going capital requirements Match useful life of assets to financing term Manage liquidity cash positions Complement to Bond issues Simplicity and flexibility No voter approval needed (vs. bond issues) Timeline to finalize lease much shorter (than bonds) Cost Less than most bond issues Involves multiple assets with different terms 11

12 Non-Appropriation Requires a school district to include following year lease payments in annual budget School district can walk away from payments if funds are not appropriated Borrower mitigates: Essentiality of equipment Legal contracts/documents Be careful Don t play with fire! Non-appropriation has drastic consequences Impact future ability to borrow on non-appropriation contracts Fool me once shame on me. COP s as well as leases No unjust enrichment you cannot keep equipment 12

13 Benefits of a Master Lease Line Centralized purchasing through one capital source Fastest access to market All departments have access to the line saves time and money Flexibility to accommodate various terms Does not require voter approval To meet on-going, medium-term capital requirements Match useful life of assets to the financing term Complement to public capital at fraction of the cost Efficient documentation process Ability to lock-in rates for long acquisition or construction periods Prepayment flexibility No public disclosure 13

14 Comparison of Lease to Bond Lower cost of issuance Shorter documentation timeline; more flexible document May be on/off balance sheet (501.c.3) No public disclosure requirements Generally secured by asset or by revenue pledge Typically shorter-tenor (3-10 years) Size minimum $5MM Appropriations lease generally does not contain: Covenants Liquidity instrument Bond rating Lease Attributes Parity of debt will be affected by status of current debt covenants, local statutes May be held as investment or syndicated as private placement Higher issuance cost Timeline to document is significant; less flexible documents On balance sheet Public disclosure required Typically not secured by assets; frequently utilize revenue pledge Tenors range from 3-30 years Size minimum $20MM Contains Covenants LC or insurance Bond rating Bond Attributes Parity of debt will be affected by status of current bond covenants, local statutes Typically syndicated into the public bond market 14

15 Funding Options Interest Rate Options: Lock-in rate at funding Use of index until funding for life of master lease Components Base term or Average life Index (Average life swaps) Spread Typical interest rate index: Interest rate = Average life swaps x 65%, plus predetermined spread Avoid: Proprietary indexes (indexes not accessible to public) 15

16 Escrow Funding One funding up front Take away interest rate risk Easy vendor payment or self-reimbursement process Interest accrued in account benefits school district Negative arbitrage 16

17 Lease Documentation

18 Lease Documentation Package Master Lease Agreement Acquisition Fund and Account Control Agreement (aka Escrow agreement) Lease Schedule Acceptance Certificate Arbitrage and Tax Certificate Essential Use Certificate IRS Form 8038 Opinion (Tax) Authority Opinion Resolution/Board Minutes Reimbursement Resolution or Declaration of Intent (for lessee reimbursements) Incumbency Certificate Insurance Certificate for property and liability 18

19 Documentation Issues Timeline from Lessor selection to funding Credit approval Lessee document review Negotiations Internal (council) approvals Signing Funding (pre-close very helpful) Funding or disbursement considerations Customer to provide originals of invoices (including signed Vendor Transaction Fee Form, if applicable), proof of payment, and evidence of insurance Average turnaround time is 48 hours Escrow account (documents needed to release funds) Deutsche Bank as escrow agent Funds initially disbursed into escrow account At expiration of escrow period, excess funds applied to rents or principal repayment Vehicles, titled units, etc. Lessor as lien holder Copies of completed title applications should be submitted to Lessor at time of disbursement request Titles held by lender 19

20 Transportation Needs Buses Automobiles Maintenance vehicles Average bus costs: Type A1: $51,000 Type A2: $67,000 Type C: $83,000 Type D: $105,000 Issues: Average age of current fleet Skyrocketing maintenance costs (Diesel mechanics) How to handle interest rate risk (240 day delivery) Solution: Master lease! 20

21 Florida s Digital Learning Initiatives The state of Florida has groups working on several digital initiatives Florida 2.0 Digital Learning Group Florida Digital Instructional Materials Work Group Reforms being implemented by 2014/15 to ensure State remains leader in digital learning Goal is to have equitable access to a device every student can use to access high-quality digital content anywhere One to One device goal Focus on digital learning Mobile learning anytime anywhere One to One access devices Digital assessment Student response systems Digital Content 21

22 Florida s Digital Learning Initiatives - Funding Currently, to achieve a One to One goal, Florida schools would need 1.7 million additional mobile computers. Challenge is funding costs associated with Digital Learning Aside from student devices, other costs include: Virtual workstations Network infrastructure Access points Controllers Switches Routers Facility upgrades to HVAC systems to handle heat, power Provisions for battery powered devices: charging stations, electrical outlets BYOD opens up it s own Pandora's box 22

23 Achieving Sustainability and Economic Objectives through Energy Services

24 Energy Performance Contracting Fundamentals Contracting method by which an entity procures energy savings and deferred maintenance facility improvements typically under a Guaranteed Savings Energy Performance Contract or similar agreement (an EPC) from an Energy Services Company (ESCO) Utility or cost avoidance savings generated from the project are typically guaranteed by the ESCO Savings may be measured or stipulated (agreed to between the customer and the ESCO upfront) Savings are generally used to cover the financing of the improvements Most states have passed performance contracting statutes to facilitate but also standardize EPC terms and requirements for public entities within the state Contract tenors and EPC requirements vary by state Common Energy Conservation Measures Energy efficient indoor lighting Building control systems and occupancy sensors Boilers, chillers, HVAC and mechanical systems Central plants Outdoor lighting, parking lights, street lights LED traffic signals Water meters, electric meters and automated meter reading systems Water flow conservation fixtures Energy recovery systems Roof replacements, insulation and windows 24

25 Financing Solutions Traditional Products Cash Tax-exempt lease purchase agreement (TELP) municipal and 501(c)(3) Commercial rated debt (LIS and loans) Tax/operating leases Privately placed General Obligation Bonds or Revenue Bonds Purchase of Receivables Non-Tax and Tax Structured Financing Energy/utility service agreements Tax Advantaged Structures Tax Credit Obligations provide financing incentives which reduce interest costs (may be issued as bonds, leases or loans) - Qualified Zone Academy Obligations (QZABs) - New Clean Renewable Energy Obligations (New CREBs) - Qualified Energy Conservation Obligations (QECBs) - Qualified School Construction Obligations (QSCBs) Power Purchase Agreement 25

26 Energy Performance Contracting Diagram Financing Example Using a Lease/Purchase Agreement The issuer s obligations under the Lease/Purchase Agreement are independent of the vendor s obligations under the Energy Performance Contracting Agreement. ESCO/ Vendor Lender Energy Performance/ Guaranteed Savings Contract School District Tax- Exempt/Taxable Capital Lease/ Purchase Agreement 26

27 Market Dynamics Positive Market Conditions Demand for energy independence Pursuing energy efficiencies for local economic development Societal support for renewable/clean energy Need to reduce demand on the grid Address deferred maintenance Legislative Support State programs Energy Policy Act of 2005 The American Recovery and Reinvestment Act of 2009 Financial Incentives Financing subsidies Grant programs Solar tax credits Renewable energy credits Commercial buildings tax deduction Deterrents Fiscal budgets Natural / energy gas prices Political priorities 27

28 Benefits of Energy Efficiency and Renewable Energy Replacement of older equipment with new more reliable/efficient assets than generally can pay for themselves Cashflow deferred maintenance items by leveraging faster payback initiatives Reduce utility expenses Improve budgeting/forecasting Federal tax incentives 28 - Investment Tax Credits/Production Tax Credits - Cash grant in lieu of tax credits (stimulus) Utility incentives - Compliance with renewable portfolio standards Environmental attributes - Renewable energy credits - Carbon offset - Achieve Issuer s Sustainability Goals Other benefits - Increased property value - Green community leadership

29 Qualified Energy Conservation Obligations (QECBs)¹ QECBs - $3.2 billion Capital expenditures for: - Reducing energy use in public buildings by at least 20% - Implementing green community programs - Rural development involving production of electricity from renewable energy resources and research facility expenditures for certain technologies - New CREBs projects Allocated to the States in proportion to US population, with sub-allocations to large local governments (LLGs) with a population > 100,000, and the reminder allocated at the discretion of the State No expiration date for allocations (will this change?) Sub-allocations may be waived by LLG No more than 30% of the allocation may be used for non-governmental purposes Carry over of unused credits 2% costs of issuance limitations Davis-Bacon Applies Only 70% of the posted tax credit may be utilized Direct Pay Option Permitted via Hiring Incentives to Restore Employment Act of 2010 Jobs Act 29 1 May be issued as bonds, leases or loans.

30 Qualified Zone Academy Obligations (QZABs)¹ Qualified school renovation (including energy improvements), related equipment, school personnel training and course material development Allocated among the States on the basis of their respective populations below the poverty line, sub-allocated by the appropriate State education agencies to qualified zone academies within the State New $400 MN allocations for 2011, 2012, and % of the posted tax credit may be utilized Treasury sets maximum permitted maturity monthly 10% private contribution required Direct Pay Option Permitted via Hiring Incentives to Restore Employment Act of 2010 Jobs Act HOWEVER DIRECT PAY OPTION RESCINDED FOR $400 MN 2011 QZABs 30 1 May be issued as bonds, leases or loans.

31 Banc of America Public Capital Corp

32 Government Finance Why work with us: BAPCC clients have access to the full range of financial products delivered by Bank of America Merrill Lynch including short, medium and long term debt financing, equipment financing, treasury management and other banking solutions Local expertise and decision making authority with access to Bank of America Merrill Lynch resources Ability to structure, execute and support large and difficult transactions - Expertise in a wide selection of taxable and tax-exempt asset secured financing solutions - Expertise in a wide selection of asset types - Solutions for small, medium and large clients Our strategy combines industry leading structuring capabilities with efficient interest costs Bank of America Corporation s commitment to the communities in which we serve 32

33 Government Finance Overview Business Model As part of Banc of America Public Capital Corp (BAPCC), a wholly-owned subsidiary of Bank of America N.A., Government Finance structures, invests in and distributes tax-exempt and taxable asset finance transactions to complement the medium-term and long term financial strategies of government entities. The group is one of the government sector s largest providers of asset financing solutions. Products include taxable and tax-exempt appropriation leases (single funding or master lease line), lease purchase agreements, other assets secured debt financing such as loans or notes and operating leases. Client Focus Locations Market Coverage Deal Size Governmental agencies and sub-agencies, public colleges and universities Chicago, IL New York, NY Phoenix, AZ Richmond, VA Geographic Focus $1 million to $100 million Target Markets/Clients Governmental agencies and sub-agencies including states, cities, counties, K-12 school districts, special districts (ports, transportation, water, sewer, power and health) Public colleges and universities 33

34 Contacts at Banc of America Public Capital Corp Chuck Maguire Senior Vice President Banc of America Public Capital Corp Government Finance Tel: Fax: Banc of America Public Capital Corp 1111 E Main Street, Richmond, VA Geoff Culm Senior Vice President Banc of America Public Capital Corp Energy Services Tel: Fax: geoffrey.r.culm@baml.com Banc of America Public Capital Corp 135 South LaSalle Street, 10th Floor, Chicago, IL Alex Ottiano Senior Transaction Manager Banc of America Public Capital Corp Government Finance Tel: Fax: alexander.ottiano@baml.com Banc of America Public Capital Corp 1 Financial Plaza, Providence, RI Courtney Guzman Senior Transaction Manager Banc of America Public Capital Corp Energy Services Tel: Fax: courtney.guzman@baml.com Banc of America Public Capital Corp One Bryant Park, New York, NY Bank of America Merrill Lynch is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, leasing, equipment finance, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation ( Investment Banking Affiliates ), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp., both of which are registered broker-dealers and members of FINRA and SIPC, and, in other jurisdictions, by locally registered entities. Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp. are registered as futures commission merchants with the CFTC and are members of the NFA. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured. May Lose Value. Are Not Bank Guaranteed Bank of America Corporation 34