new markets tax credits f. robert wilson, cei capital management llc september 26, 2013

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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