new markets tax credits f. robert wilson, cei capital management llc september 26, 2013
TRANSCRIPT
New Markets Tax CreditsF. Robert Wilson, CEI Capital Management LLC
September 26, 2013
New Markets Tax Credits
One tool in the Economic Development Finance Toolkit
New Markets Tax Credits 40,00 ft. view of 1) What they are 2) Which jobs they are appropriate for?
New Markets Tax Credits - $36.5 billion in tax credit authority
- approx. $11 billion in NMTC equity
- 385,000 jobs
- 108 million SF of commercial real estate (manufacturing, office, and retail)
Project Finance vs.
Growth Capitalvs.
Working Capital
NMTC DEALS ARE COMPLEX…so always hold this thought:Tra
ditio
nal P
roje
ct Cap
ital S
tack
SENIOR DEBT
SUB-DEBT
EQUITY
NM
TC P
roje
ct Cap
ital S
tack
SENIOR DEBT
SUB-DEBT
NMTC SUBSIDY
(NMTC Equity)
TRUE EQUITY
SENIOR DEBT
SUB-DEBT
EQUITY
NMTC DEALS ARE COMPLEX…so always hold this thought:
NM
TC P
roje
ct Cap
ital S
tack
SENIOR DEBT
SUB-DEBT
NMTC SUBSIDY
(NMTC Equity)
TRUE EQUITY
SENIOR DEBT
SUB-DEBT
EQUITY
NMTC DEALS ARE COMPLEX…so always hold this thought:
NM
TC P
roje
ct Cap
ital S
tack
SENIOR DEBT
SUB-DEBT
NMTC SUBSIDY
(NMTC Equity)
TRUE EQUITY
SENIOR DEBT
SUB-DEBT
EQUITY
NMTCS PROVIDE APPROXIMATELY 20% OF THE PROJECT CAPITAL AS LOW/NO-COST, NON-DILUTIVE EQUITY!
NMTC DEALS ARE COMPLEX…so always hold this thought:
WHO?WHERE?
WHY?
WHERE?
1. GEOGRAPHY
Qualified Census Tracts
• Per 2010 Census:–80 % of Median Family
Income–20% Poverty Rate – Multiple other criteria for
“Higher Distress”Mapping - www.novoco.com / www.cohnreznick.com
2. Targeted Populations
Project Based
• Employment of low income workers
• Ownership by low income community
• Revenue derived from services to low income individuals or community
• Multiple other criteria for “Higher Distress”
WHO / WHY?
WHY? The Answer Depends on Who You Ask
WHO / WHY
• US. Treasury: To drive private capital into Low Income Communities (LICs)
• Borrower: Low Cost, Flexible Capital• Allocatee: Mission and earnings as an
intermediary
WHO / WHY?
• US. Treasury: To drive private capital into Low Income Communities (LICs)
• Allocatee: Mission and earnings as an intermediary
• Borrower: Low Cost, Flexible Capital• Investor: Adequate Risk adjusted ROI• Lender: Adequate Risk adjusted ROI
Plymouth Community Health CenterPlymouth, New Hampshire
As of 8/01/06(a)
NMTCs$1,337,700
QEI$3,430,000
Debt ServiceLoan Payments Equity Investor
Bank Consortium(Owns 99.99% of Pooling LLC)
Franklin Savings Bank = $377,395.50Woodsville Guaranty Savings Bank = $377,395.50Community Guaranty Savings Bank = $251,597.00
Total Bank Consortium Equity = $1,006,388.00
Prime “A” DebtBank Consortium
CCML New HampshireInvestment Fund II LLC
Investor Pooling Fund LLCTotal = $3,433,600.(Owns 99.99% of CDE)
Loan= $1,647,212
CCM Real Estate III LLC
CDE
Loan$3,320,000.
CRDC Plymouth Community Development Corp.
QALICB
Debt ServiceLoan Payments
CCMLNMTCMgr.
(0.01%)Front End Fee
$343
$415,000
RDLEG Loan $360,000
CCMLManagingMember(0.01%)
* Note: $3,600 held in operating expense reserve account.
Equity = $1,006,388
NMTCs = $1,337,566+ $ Back-end fee (5%)
$115,000
debt service
CDBG Loan
CDFA Loan$250,00
0
debt service
debt service
CRDC Loan
Mid-State Health Center
Tenant
$101
CRDC Loan$71,100
2013 ADC BASE REDEVELOPMENT FORUM | PAGE 19
19
DEAL EXAMPLES
• $10MM Project with $10MM allocation ($10MM QEI)
• Debt: $6.97M / NMTC Equity $3.03M
• Tax credits on equity = $3.9M
• Price paid / NMTC credit = $0.776
• IRR impact factors: tax rate, loss carries, earnings on reserves…
EXAMPLE NMTC PROJECT
• After-tax IRR: 7.52% (assumes 35% tax rate)
• Senior leverage loan at market rate (at 70% LTV)
• Borrower’s rate 180 bps below market rate (at 100% LTV)
EXAMPLE NMTC PROJECT OUTCOMES
BRUNSWICK LANDING MHC USA, LLC
BRUNSWICK, MAINE .
(WHITERIVER ARIZONA)
FORT APACHE TIMBER CO.(WHITERIVER ARIZONA)
WESTERVELT PELLETS I LLC Aliceville, Alabama
(WHITERIVER ARIZONA)
EMMI PLATTEVILLE, INC. Platteville, Wisconsin
AXIO GREEN, LLC Greenville, Massachusetts
. Platteville, Wisconsin
PLYMOUTH COMMUNITY HEALTH CENTER
Plymouth, New Hampshire
REMEMBER!!!!N
MTC
Pro
ject C
ap
ital S
tack
SENIOR DEBT
SUB-DEBT
NMTC SUBSIDY
(NMTC Equity)
TRUE EQUITY
NMTCS PROVIDE APPROXIMATELY 20% OF THE PROJECT CAPITAL AS LOW/NO-COST, NON-DILUTIVE EQUITY!
2013 ADC BASE REDEVELOPMENT FORUM | PAGE 29
29High
CapitalRequired
Low
Highest Risk Lowest Risk
Seed Capital
ConceptPlanning & Verification
Start-upRevenueGeneration
Growth MatureGrowth
VentureCapital
Public Market Equity
Earnings
Debt Capital
Early Stage Expansion
Acquisition - Buyout
SOURCES OF CAPITAL FOR A GROWTH COMPANY
2013 ADC BASE REDEVELOPMENT FORUM | PAGE 30
30High
CapitalRequired
Low
Highest Risk Lowest Risk
Seed Capital
ConceptPlanning & Verification
Start-upRevenueGeneration
Growth MatureGrowth
VentureCapital
Public Market Equity
Earnings
Debt Capital
Early Stage Expansion
Acquisition - Buyout
SOURCES OF CAPITAL FOR A GROWTH COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RISK VERSUSBUSINESS GROWTH STAGES
SOURCES OF FINANCING & REASONS FOR BORROWING
RISK & SOURCES
High
Low1 2 3 4 5 6
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Per
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, Rel
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Per
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Spec
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anks
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Vent
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Cap
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Bank
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