Creative and Alternative Financing for Tribal Projects - Thinking Outside the Box Presented by Valerie Red-Horse NIGA 2014 Red-Horse Financial Group, Inc. RED-HORSE FINANCIAL GROUP, INC. 1
Tribal Finance Options Overview: USDA GUARANTEED LOAN PROGRAM (also SBA, BIA) - 3 ONAP (Office of Native American Programs) IHBG (Indian Housing Block Grant) Bond Financing Alternative through HUD - 7 TAX EXEMPT FINANCING (VIA TRIBAL ECONOMIC DEVELOPMENT BONDS) - 9 TAX CREDITS FINANCING - 11 EB5 FINANCING - 12 FINANCING VIA STRATEGICS 13 GENERAL PREPARATION - 14 RED-HORSE FINANCIAL GROUP, INC. 2
USDA Program Overview: The USDA Business & Industry (B&I) and Community Facilities (CF) loan guarantee programs are designed as cooperative efforts between the federal government and private banks to make available loans that might not otherwise be made available in a rural setting. In the United States Department of Agriculture (USDA) loan guarantee programs, the USDA guarantees against a loss resulting from borrower default ranges to a maximum of 90% for qualifying tribal government projects. Capital Markets Transactions versus USDA Guaranteed Loans The capital markets and bond market today are very difficult to access for small tribal issues. USDA backed loans are considerably less expensive to originate. Generally smaller or no debt service reserves are required like capital markets lending which increases the amounts borrowed. RED-HORSE FINANCIAL GROUP, INC. 3
USDA Program Overview: The USDA loan guarantee programs are NOT GRANTS! The USDA loan guarantee programs ARE NOT FUNDED BY GOVERNMENT MONEY The USDA loan guarantee program loans ARE TYPICALLY FUNDED BY COMMERCIAL BANKS Qualifying to be eligible for the USDA loan guarantee programs DOES NOT MEAN A SPECIFIC TRIBAL PROJECT IS NECESSARIULY CREDIT QUALIFIED TO RECEIVE FUNDING RED-HORSE FINANCIAL GROUP, INC. 4
USDA Guaranteed Loans-Examples of B&I Eligible Projects Manufacturing Plants Investment Properties Strip Mall Centers Child Care Facilities Franchises Truck Stops Juvenile Correction Facilities Jails Airplanes & Helicopters Vending Companies Rodeo/Horse Training Facilities Rock Quarries Lumber Mills Mulch Manufacturing Coal Mines Fruit and Nut Processing Convention Centers Multi-Family Housing Dental Offices Hospitals/Nursing Homes Hunting Lodges Processing Plants Distribution Facilities Wholesale Operations Hotels & Motels Restaurants Warehouses Tourist & Recreation Marina Operations Convenience Stores Oil Refineries Bottled Water Co. (Note: Project range best if $2-10M)Quarries RED-HORSE FINANCIAL GROUP, INC. 5
USDA Community Facilities (CF) Guaranteed Loan Program Examples of Eligible Projects Community Health Services, including hospitals, health clinics, assisted living, nursing homes, and dialysis centers Fire, rescue, and Public-safety facilities such as police cars, fire trucks, and police stations; Educational and cultural facilities, such as schools, libraries and student housing. Transportation facilities, such as airports, street improvements or bus service. Community support services, such as child or adult day care; and Public buildings and improvements, including community and multipurpose centers. (Note best if project range is less than $40M) RED-HORSE FINANCIAL GROUP, INC. 6
The ONAP (Office of Native American Programs) IHBG (Indian Housing Block Grant) Bond Financing w/hud (Housing & Urban Development) The ONAP (Office of Native American Programs) IHBG (Indian Housing Block Grant) Bond Financing Alternative through HUD (Housing & Urban Development), is a truly unique opportunity for tribal nations wanting to develop housing and housing-related infrastructure projects without tapping into their own finances. This program provides for the tribes housing authority s to issue long term low interest (tax exempt) bonds utilizing a portion (up to one third) of their HUD/IHBG grant (needs) proceeds as the security for the debt service and HUD guarantees the bonds using their creditworthiness (not the tribe s) so the notes receive an indicative rating of AA. The only due diligence performed on the tribal nation is the operational ability/history of their housing authority. The tribe s other assets are virtually untouched and the issue does not count as additional debt for any of their debt ratios under existing or future offering debt test calculations. The debt service on the bonds is secured in a lock-box system and the tribe never has to worry about making the payments. RED-HORSE FINANCIAL GROUP, INC. 7
The ONAP (Office of Native American Programs) IHBG (Indian Housing Block Grant) Bond Financing w/hud (Housing & Urban Development) Should the tribe s HUD allocation ever be reduced or terminated the bond payments are still guaranteed for the life of the bond issuance. HUD guarantees the bonds so in the event the grants are terminated or some other situation occurs on a federal level that affects the annual payments, it is a non-recourse commitment to the tribe. The housing authority can complete larger projects that include non-housing amenities or businesses by utilizing the ONAP IHBG bond funding for the housing portion of the project and combining it with tax credits, USDA /BIA loans and/or other tax exempt funding. These bonds are issued via a traditional Wall Street bond issuance protocol via placement agents to the private sector, but because of the government guarantee these bonds are popular and often oversubscribed. Typical bond purchasers are large institutional funds, insurance companies, mutual funds and money management firms. (Note: Financing limits are based on Tribe s existing HUD allocation; no market limit) RED-HORSE FINANCIAL GROUP, INC. 8
Tax Exempt Municipal Bonds Overview What Exactly Does Tax Exempt Debt Mean? Lender/Investor does not pay Federal Income Tax on interest payments received from tribal issuer Lower Interest Rates for tribal issuer (typically 2-3% less than taxable) Typically Longer term/tenor of debt (10-30 years) Different investor pool than taxable debt (QIBS) Tax Exempt Debt Service can be paid for/secured by cash flow from a casino/resort or other taxable sources, but the proceeds from taxexempt financings cannot be utilized for taxable purposes (must only be utilized for qualified uses) Tribes can always issue tax exempt debt for essential government services projects Tribe needs finance professionals to identify purchasers Recent TED Program allows for expanded uses now eligible RED-HORSE FINANCIAL GROUP, INC. 9
Tax Exempt Municipal Bonds Overview Examples of Projects that can now be financed by Tribal Nations in Indian Country via Tax Exempt Issuances if allocated a Tribal Economic Development Bond allotment (TED Bond): Hotels Conference Centers Golf Courses Manufacturing Commercial Development (Cannot finance any part of building where common walls exist with gaming operations) Rates will not be as low as those issued with a government guarantee as the project will be rated via its own financial profile (Note: Well suited for larger projects up to approximately $200 million as long as project demonstrates financial viability for the amount raised) RED-HORSE FINANCIAL GROUP, INC. 10
Tax Credits(New Markets, Low Income Housing, Energy) The premise of Tax Credits is simple, but the process is complicated. Basically, the government allows certain investors to invest/lend into a qualifying project in exchange for receiving tax credits that will reduce that investor s income tax liability (typically a corporate or institutional entity). The credits may be based on location (New Markets), type of project (Low Income Housing) or utilization (Renewable Energy). In some cases the borrower (the Tribal Authority) will receive direct credit or they may receive funding at a very low cost interest rate for a certain time, then the funding is converted into equity in the project so there is no principal repayment of that portion...i.e. free money for all intents and purposes. Typically tax credits can cover about 25% of a project s budget; the other 75-80% of the project s funding will come from traditional lending sources (banks or bonds). Because there is some complexity in allocations, funding cycles and applications process, the time frame for receiving funding via tax credits can be lengthy (up to 12 months or more in many cases). RED-HORSE FINANCIAL GROUP, INC. 11
EB5 FINANCING The EB-5 visa program for Immigrant Investors is technically a United States visa program which provides a method of obtaining a green card for foreign nationals who invest money in the United States. The investment typically must be made in a "Targeted Employment Area" (high unemployment or rural area), creating or preserving at least 10 jobs for U.S. workers excluding the investor and their immediate family. "Regional Center" - a 3rd party-managed investment vehicle (private or public), which assumes the responsibility of creating the requisite jobs. Regional Centers charge an administration fee for managing the investor's investment. EB-5 financing can be just a part of a larger project financing. It can come in as equity, senior debt or subordinated debt. Although the process of obtaining EB-5 financing can take 9 to 12 months, a developer can use bridge financing to fund construction, and then pay off the bridge financing when the EB-5 financing is made available. The project must be in a targeted employment area and the number of jobs must support the amount of financing you want to raise through EB-5 financing Complicated and lengthy process; attractive interest rates RED-HORSE FINANCIAL GROUP, INC. 12
FINANCING VIA STRATEGICS Management Companies Vendors Suppliers Two Pronged Revenue Stream for Strategic Investor: -Return on Investment (typically via an interest rate) -Contract revenue Strategics understand working with tribal governments; the tribal gaming nuances, how to maneuver through limited waivers of sovereign immunity and register with a gaming license Tribe should need/utilize the service and pay a market price regardless of a loan or finance relationship RED-HORSE FINANCIAL GROUP, INC. 13
General Preparation Important to Understand What ALL Lenders Consider: Cash Flow Formulaic Logic Management Tribal Government Stability Historical Problems/Issues Market Conditions (unrelated to project) Structure of existing issue and other debt already in place Demographics/competition in area Strength of construction team (GC, Architect, Developer) RED-HORSE FINANCIAL GROUP, INC. 14
Thank You For Attending! Presented by Valerie Red-Horse Valerie Red-Horse of Cherokee ancestry, Red-Horse has more than 30 years in-depth experience in the financial services and investment banking industries including debt restructuring, taxable issuance, private placements, municipal issuance, high yield bond transactions, leveraged finance and loan originations with a unique expertise in the tribal finance sector. Red-Horse has led over fifty financial mandates totaling in excess of $3 billion dollars in transactions. Ms. Red-Horse has assisted/advised clients in transactions ranging from $1 million to $1 billion and has been requested to testify, as a professional expert, regarding tribal finance, for both State and Federal Legislative bodies. Recognized as a leading industry expert, Red-Horse writes tribal finance focused columns for various industry publications and is the host for Casino Enterprise Management s NATIVE AMERICAN GAMING talk show. Red-Horse is also the owner of Red-Horse Native Productions, Inc., is the founder of two non-profit ministries and was inducted into the National Association of Women Business Owners (NAWBO) Hall of Fame in 2008. Valerie Red-Horse, President/Owner Red-Horse Financial Group, Inc. 16835 Algonquin Street Huntington Beach, California 92649 Phone: (818) 389-4714 Fax: (714) 242-6903 Email: valerier@valerieredhorse.com RED-HORSE FINANCIAL GROUP, INC. 15