INNOVATIVE BUSINESS AND DEVELOPMENT FINANCING STATE AND FEDERAL NEW MARKETS TAX CREDITS
Introduction
Important Highlights Economic Boost to Qualified Projects of more than twenty percent (20%) of Project Costs Broad Uses for Operating Capital and Bricks and Mortar Start-ups, early stage companies, established businesses, and not-forprofit entities are all eligible Targeted States and High Quality Projects will be in High Demand Structuring often can assist an initially unqualified project meet requirements Use of One Day Bridge Loans/Bridge Equity and State Programs
Background and History Community Renewal Tax Relief Act of 2000 Section 45D of the Code Bipartisan Support First Applications for credit allocation in 2002 First lending in 2003
First Decade Early Days = Wild West Major Metropolitan Market Focus Approximately $40 Billion in Allocation Financial Institution Influence
Targeted States/Territories Alabama, Arkansas, Florida, Georgia, Idaho, Kansas, Nevada, Tennessee, Texas, West Virginia, and U.S. Islands and Territories
Who are the players? Tax Credit Investors Community Development Entities (tax credit conduits) Qualified Borrowers Leverage Lenders
World of Acronyms NMTC = New Markets Tax Credits CDFI = Community Development Financial Institutions Fund (Treasury Department) (Q)CDE = (Qualified) Community Development Entity QALICB = Qualified Active Low-Income Community Business QLICI = Qualified Low-Income Community Investment QEI = Qualified Equity Investment NQFP = Non-Qualified Financial Property LIC = Low-Income Community QCT = Qualified Census Tract LIP = Low-Income Person
Purpose of NMTC Financing Infusion of Capital into Low-Income Communities Increases Project Economic Viability Promote lending in areas of traditional difficulty Allow for flexible and creative lending structures Assists Projects in filling gaps in capital stacks The greatest untapped markets in the world are right here at home, in our distressed communities - Vice-President Al Gore
What if I have no need for tax credits? Tax exempt entities, companies burning through NOLs and start-ups all benefit Tax credits flow upstream to Tax Credit Investors purchasing tax credits for a discount 39% federal income tax credit payable over 7 years (5% for first three years; 6% thereafter) Benefit arising from NMTC Equity flows downstream to Project
How CDEs Receive Credits Re-authorization of program Application and allocation by CDFI in highly competitive process Credit Availability Cycles Latest Allocation June 2014 Future Allocation Rounds
How NMTC Financing Impacts Projects Approximately twenty percent (20%) net benefit of Project costs The Net Benefit Line of Credit Illustration Operating and Expansion Capital: Soft and Hard Capital Impact on Debt Financing and Loan to Value
Dual Beauty Pageants Projects CDEs
Attractive Project Features Community Impact Timing Financing, Equity or Balance Sheet Assets in Place Introduction to Concept of Leverage Lender Role in NMTC Leveraged Transaction Model
Basic Qualification Low-income Community Census Tract Severe Distress vs. Qualified Primary and Secondary Criteria Average Median Family Income/Poverty Rate/Unemployment Rate Not qualified: Residential Rental Housing consisting of over 80 percent revenue from residential tenants Enumerated list of sin businesses Farms Raw land with no plans for development
Basic Qualification Gross Assets Tangible Assets Services NQFP Collectibles Reasonable Expectations
Advanced Qualification Targeted Population Regulations LIPs: Generally 80% of Area Median Income Gross Revenue (50%), Ownership (50%), or Employees (40%) Census Tract cannot be over 120% of Area Median Family Income
Risk Factors Complexity Recapture/Redeployment Commercial Loan Default Headline Risk
State Program Case Study Florida, Alabama, Mississippi, Louisiana, Arkansas, Kentucky, Illinois, Ohio, Maine, Nebraska, Utah, Nevada, Oregon, and Alaska
State of Florida New Markets Development Program Act Similar to Federal Program Twelve to fifteen percent net benefit of project costs Qualifying Projects c stack or twin with federal program of upwards of 30 percent net benefit Part XIII of Chapter 288, Florida Statutes Department of Economic Opportunity Less Competitive Key Distinctions: Operating Business Focus Restriction on rentals or lease Wage requirement (115% of federal poverty guidelines for a family of four) $10 MM Cap
Complementary and Alternative Financing Programs Super charge NMTC financing through twinning with HTC, State NMTC, ITC, PTC, and R&D tax credits No twinning or use with LIHTC EB-5 Program Governmental Grants and Public Support Conduit Issuance of Tax Exempt Bonds
PROJECT DISCUSSION FORUM A FOCUS ON QUALIFIED PROJECT FINANCING
Project Examples Community centers; Healthcare facilities; Grocery stores; Manufacturing facilities; Packing plants; Processing facilities; Job training centers; Economic development mixed use facilities; Commercial office buildings/improvements; Shelters; Child development centers; Major transportation hubs or infrastructure; Hotels; Sporting facilities; Restaurants; Small business growth; Renewable product manufacturers; Ship building and ship repair concerns; Aquariums; Museums; Convention facilities; Parking garages; Rural job creation oriented businesses; And food banks and/or food resource centers
Projects in Florida and Qualify Projects Past Examples of Quality Projects Mapping Exercise
Investing in Tax Credits Advantages of an affiliate investing in the federal income tax credits of a NMTC financing Increased net benefit or subsidy"
Project Intake Form Intake and Discuss Next Steps for Attracting Credit Financing
NMTC Funding Cycles Federal States
NMTC FINANCING MODEL AND CASE STUDY WORKSHOP A FOCUS ON QUALIFIED PROJECT FINANCING
The Leveraged Model IRS Notice 2003-9 Most common model in use today Risk mitigation and allows current unwind mechanism Self Investing
Upper Tier of Transaction Tax Credit Investor Leverage Lender $1,250,000 Tax Credit Equity $3,750,000 Leverage Loan Interest Only 7 Years Investment Fund
CDE Level Fund $5,000,000 QEI Sub-CDE
QLICI Loans Sub-CDE $1,250,000 QLICI A Note Interest Only 7 Years $3,750,000 QLICI B Note Interest Only 7 Years QALICB
Year 7 Unwind Put Option Call Option COD Income
Questions? James O. Lang Baynard, McLeod & Lang, P.A. 813.642.7885 (Tampa) 727.894.0676 (St. Petersburg) 727.433.0015 (Mobile) jlang@bmlpa.com Mark G. Lawson Mark G. Lawson, P.A. (850) 591-5630 (850) 807-2987 (facsimile) Post Office Box 14043 Tallahassee, Florida 32317-4043 mlawson@markglawson.com