New Markets Tax Credit Program Overview

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1 New Markets Tax Credit Program Overview Presented to May 5, 2014

2 Agenda The TD Community Development Corporation Team New Markets Tax Credit Program New Markets Tax Credit Program & Legislative Update TD Community Development Corporation Program Update 2013 New Markets Tax Credit Projects Structure Options Simple Model and Leveraged Model 2

3 TDCDC Team Lance D. Player Corey T. Buchanan Kevin M. Short Rob Hoak Deployment Director TD Community Development Corporation Compliance Director TD Community Development Corporation President TD Community Development Corporation Regional President - Carolinas TD Bank, NA [email protected] 3

4 TDCDC Team Lance D. Player Deployment Director - As Deployment Director, Mr. Player works with both public and private companies in North Carolina, South Carolina and Florida to finance capital projects using NMTC financing. His primary responsibilities include managing the deployment of NMTC allocation and monitoring the bank s existing NMTC portfolio. Mr. Player has been instrumental in helping the bank develop policies and procedures for its NMTC program, including credit policy and internal processes. Prior to taking his current role in February 2013, Mr. Player was a Commercial Lender with both TD Bank and SunTrust Bank in South Carolina. He currently serves on the NMTC Coalition Investor Advisory Board of Directors which is a national board supporting the NMTC program. Mr. Player received a Bachelor of Arts degree in Finance and Economics from Wofford College. Corey T. Buchanan Compliance Director - Mr. Buchanan is TDCDC s NMTC Compliance Director. In this role he works closely with the President and Deployment Director in all aspects of NMTC compliance and portfolio management. Mr. Buchanan has been working with TDCDC s NMTC program since April 2012 and has played an integral role in establishing polices and procedures for TD Bank. Prior to joining TDCDC / TD Bank, Mr. Buchanan served as the NMTC Program Manager for Greenville New Markets Opportunity (GNMO) and implemented the organizational, deployment and compliance related activities of a round IV $89 million NMTC allocation. Additionally, Mr. Buchanan worked for SunTrust Banks, Inc. from 2001 until joining GNMO in Buchanan serves as the Treasurer on the Christ Church Episcopal Preschool Board of Directors and is an Operating Board Member of Greenville New Markets Opportunity II (a certified CDE). Mr. Buchanan received a Bachelor of Science degree from Clemson University. Kevin M. Short President - Kevin Short is the President of TDCDC and oversees all operations and personnel. Mr. Short coordinates TDCDC s activities with TD Bank and ensures that TDCDC has the resources it needs to effectively manage its activities. Mr. Short is a Senior Vice President and Manager of SC Middle Market banking for TD Bank. During his seven year tenure with TD Bank, Mr. Short has generated over $800 million in corporate loans, and produced in excess of $15 million in fees associated with this book of business. A 31-year veteran of corporate banking, Mr. Short spent 22 years with Wachovia Bank, N.A., in various corporate banking roles, the most recent of which was Regional Corporate Banking Manager in Greenville, South Carolina. Mr. Short received a Bachelor of Science degree from Clemson University. 4

5 New Markets Tax Credit Program 5

6 What are New Markets Tax Credits? Administered by the U.S. Dept of Treasury s Community Development Financial Institutions Fund (CDFI Fund) Enacted December 21, 2000 as part of the Community Renewal Tax Relief Act Encourages Private Capital Investment in Low Income Communities Provides a 39% Federal Tax Credit to Investors (TD Bank) Claimed over 7 year compliance period 5% in years 1 through 3 6% in years 4 through 7 June 10, First Notice of Allocation Availability 6

7 How do they work? Provides a Federal Income Tax Credit for Investors that make Qualified Equity Investments (QEIs) into Community Development Entities (CDEs). Our CDE is TD Community Development Corporation. CDEs in turn use the proceeds of these investments to make Qualified Low-Income Community Investments (QLICIs). QLICIs include, among other things, investments in businesses and real estate projects (QALICBs) in low-income communities. 7

8 What Qualifies an Area? Projects in census tract with an indicator of high distress The most significant indicators are: Poverty > 30% Median incomes < 60% of area median income Unemployment rates > 1.5 times the national average Fourteen additional indicators if the above do not apply 2010 Census determines qualifications 8

9 What Qualifies a Borrower? In accordance with IRS Code Section 45(d)(2), an entity can be termed as a QALICB under the following circumstances: > 50% of its total revenue is from operations occurring in any low-income community A substantial portion of its tangible property is within any low-income community A substantial portion of its employee services are performed in any low-income community 9

10 New Markets Tax Credit Program & Legislative Update 10

11 NMTC Program Update Through the first ten rounds of the NMTC Program, the CDFI Fund has made 749 awards totaling $36.5 billion in tax credit allocation authority. A total of 310 applications were submitted under the 2013/2014 round of the New Markets Tax Credit Program. The applicants requested an aggregate total of $25.8 billion in NMTC allocation authority Awards have been delayed and they are expected to be announced in May/June The Treasury Department will most likely combine the 2013/2014 Awards and authorize $8.5 billion in allocation authority versus the previously announced $3.5 billion. The industry expects to see the CDFI Fund lower the average annual award for each CDE and increase the number of successful applicants. As a result, most NMTC deals going forward will have multiple CDEs who are contributing a smaller percentage of their allocation. 11

12 NMTC Legislative Update The Ash Center at Harvard University named the New Markets Tax Credit Program as one of the Top 25 Innovations in Government. Senators Rockefeller (D-W.Va.) and Roy Blunt (R-Mo.) introduced legislation to provide a permanent extension of the NMTC Program called, The New Markets Tax Credit Act of On January 28, 2014, Rep. Richard Neal (D-MA) introduced HR 3939, the Invest in United States Act of The bill includes a permanent extension of the NMTC program. Discretionary spending in the Federal budget is trending downward. Since 2010, discretionary spending has been cut by more than $175 billion. All tax credit programs are under review. Congressman Dave Camp is leading Tax Reform talks in Washington. The House Ways and Means Committee will work with the Senate Finance Committee to finalize a framework for comprehensive tax reform. Currently, both committees are meeting weekly to discuss the plan. 12

13 TD Community Development Corporation Program Update 13

14 TDCDC NMTC Update TDCDC and its predecessor CFCDC has been a four-time award winner under the NMTC Program totaling $325 million in allocation awards. Since 2007, TD CDC has financed 34 total projects using NMTCs totaling an investment of more than $300 million. In 2013, TD CDC financed 8 projects in South Carolina and Florida. TDCDC deployed $93 million of allocation in 2013 which was the most allocation deployed in the country. TDCDC applied for an additional allocation of $125 million in Sept and we expect announcements in May/June The average award in 2012 was $45 million. 14

15 TDCDC Allocations Year Allocation Amount Deployed Availability 2007 $100,000,000 $100,000,000 $ $100,000,000 $100,000,000 $ $60,000,000 $60,000,000 $ $65,000,000 $55,903,585 $9,096,415 Total $325,000,000 $315,903,585 $9,096,415 * The Bank has five years to deploy an allocation; the balances accumulate 15

16 TDCDC Projects - Jobs Statistics Industry # of Projects Direct Jobs Indirect Jobs Grand Total Jobs Manufacturing 8 1, ,264 Healthcare Non-Profit Colleges/Universities Community Projects ,308 Total 34 3,175 2,336 5,511 * Jobs are calculated based on information reported by the QALICB to TDCDC. * Indirect jobs are construction and/or supplier related. 16

17 2013 New Markets Tax Credit Projects 17

18 2013 TDCDC NMTC Deals $ 22,180,000 Equipment Financing $ 11,000,000 $ 25,200,000 Real Estate / Equip Financing $ 22,180,000 Equipment Financing $ 15,000,000 Real Estate Financing $ 4,000,000 $ 10,000,000 $ 10,000,000 Real Estate Financing $ 3,900,000 Real Estate Financing $ 4,700,000 $ 4,000,000 $ 12,000,000 Real Estate / Equip Financing $ 22,180,000 Equipment Financing $ 4,000,000 18

19 Structure Options Simple Model & Leveraged Model 19

20 New Markets Tax Credit Simple Model Stakeholder Investment Thesis Community Job Creation Tax Base Increase Per Capita Income Increase Community Revitalization Borrower Equity Kicker: $4,563,000 Low Weighted Cost Of Capital Interest Only Loan For 7 Yrs Appraisal Advantage TD Community Develop Corp Full Relationship 4.75% sub-allocation fee on total allocation TD Community Development Corporation TD Bank, N.A. 39% Tax Credit over 7 Years Borrower 20

21 New Markets Tax Credit Leverage Model Stakeholder Investment Thesis Leveraged Lender The loan from Leveraged Lender ( LL ) can be by an affiliate who is using another bank s loan proceeds for the LL. The other bank will need separate collateral from the NMTC collateral. Borrower Equity Kicker: $4,563,000 Low Weighted Cost Of Capital Interest Only Loan For 7 Yrs Appraisal Advantage TD Community Development Corporation TD Community Develop Corp 4.75% sub-allocation fee on total allocation TD Bank, N.A. 39% Tax Credit over 7 Years Borrower 21

22 NMTC Loan Structure Summary The A Note and the B Note are interest only for 7 years In the Simple Model, the bank may require a sinking fund for the A Note. The Borrower s interest rate is typically 50% below market. Funds may be used to finance the acquisition of real estate, all types of capital expenditures (equipment purchases), and property up-fits (soft costs) The Borrower must spend the NMTC proceeds within 12 months of the closing date New equipment or real estate purchased is often used as collateral at an 80% LTV At the end of Year 7, a Cancellation of Debt event occurs IRS codes 61(a)(12), 108, and 1017 may apply Several strategies are available to minimize or avoid the tax liability (consult your CPA) 22

23 TD CDC Team Lance D. Player Vice President & Director of Sales and Marketing TD Community Development Corporation p Corey Buchanan Vice President & Compliance Director TD Community Development Corporation p