An Introduction To New Markets Tax Credits October 14, 2009 Presented By Jeremy R. Degenhart, CFA Senior Vice President Stephen C. Kramer Senior Vice President Matt Badler Assistant Vice President Community Development Corporation
Jan 14, 2016
An IntroductionTo
New Markets Tax Credits
October 14, 2009
Presented By
Jeremy R. Degenhart, CFASenior Vice President
Stephen C. KramerSenior Vice President
Matt BadlerAssistant Vice President
Community Development Corporation
About the Presenters▫ Advantage Capital Partners▫ US Bancorp Community Development Corporation
Introduction - Federal New Markets Tax Credit Program (NMTC)
Introduction - State (MO) NMDP Program Case Studies
Presentation Outline
Proprietary and Confidential. © All rights reserved 2009. Slide 2
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Firm founded in 1992 ▫ Unique financing model focused on underserved markets
• Finance up & down balance sheet: $0.5 to $10 million• Seek well-managed companies with high growth characteristics
▫ Dual bottom-line focus▫ Offices throughout the U.S.▫ Over 50 employees
Raised $1+ billion in over 35 tax advantaged funds▫ Utilize various state and federal incentive programs
Allocated $300+ million Federal New Markets Tax Credits▫ Top ten allocatee (participant) in program
Advantage Capital Partners (ACP)
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US Treasury Investment Authority
11 State Partnerships
7 National Banks
60+ Insurance Companies
ACP Blue Chip Investors & Partners
Proprietary and Confidential. © All rights reserved 2009. Slide 4
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Created in mid-1990’s Subsidiary of U.S. Bank, N.A.
Primarily equity investors whose return is a stream of tax credits
Headquartered in St. Louis with offices in Los Angeles, Kansas City, Denver and Washington, D.C.
Two Divisions▫ LIHTC (Low-Income Housing Tax Credits)▫ New Markets Tax Credits (NMTC), Historic Tax Credits (HTC) and
Renewable Energy Investment Tax Credits
US Bancorp Community Development Corporation
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Volume▫ NMTC: Over $2 billion in equity invested since 2003▫ Received $135mm in NMTC allocation in 2006, $120MM in 2007 and
$80MM in 2008▫ Over 470 NMTC transactions ▫ The most active NMTC investor in the nation ($5.6 billion of $14.3 billion
program wide Qualified Equity Investments). ▫ HTC: Active, national investor with over 150 investments of more than
$800 million in tax credit equity.▫ LIHTC: Large, national investor. Both a fund investor and direct investor.
Approximately $3.2 billion in equity invested.▫ REITC: just over one year in program – over $130 million invested▫ State Tax Credit Clearinghouse: Have purchased or invested in nearly
$500MM in MO State Tax Credits since forming in 1998, including $240MM HTC and $22MM Brownfield Credits.
US Bancorp Community Development Corporation
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Largest current federal economic development program▫ Designed to attract capital to low income communities▫ Administered by US Treasury Department▫ $19.5 billion of tax credit allocations from 2003 – 2008
• $16 billion has been allocated to date
Community Development Entity (CDE) established to finance businesses in low income communities
▫ Investors in CDE receive a 39% federal income tax credit▫ Credit taken over a sever-year period
• 5% in years 1-3• 6% in years 4-7
Significant economic impact from activity to date
Federal New Markets Tax Credit Program
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Located within a low income census tract▫ 40%+ of business’ services (employees’ location) and tangible
property▫ 50%+ of gross income derived within low income census tract
• LIC test deemed to be met if services or property exceeds 50%
No “sin industries” or commercial finance
Less than 80% of revenue from rental of residential property
Less than 5% of assets constitute nonqualified financial property
Currently generating revenue or expects to within three years
No plans to change operations or characteristics of the business▫ “Reasonable expectation” that the business will remain qualified
Federal NMTC Program: Qualification
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Four states have enacted New Markets Development programs
▫ State tax credit programs to match federal NMTC program• Missouri, 39% credit realized over 7 years (2 year delay)• Illinois, 39% credit realized over 7 years • Louisiana, 25% credit realized over 3 years• Mississippi, 24% credit realized over 3 years
State New Markets Development programs (“NMDP”) provide▫ Additional financing alternatives for local operating companies
• More risk capital with better terms than traditional sources▫ Greater collateral protection for leverage lenders
Statutory qualification mirrors federal guidelines
Influence of State Matching Credits
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Missouri bill signed into law in late 2007▫ Renewed and expanded in 2009
Approximately $187.5 million of allocation by Missouri▫ $10 million cap per NMDP financing tranche ▫ ACP has participated with both federal and Missouri tax credit allocations▫ Banks provide capital as leverage lenders to ACP▫ ACP financed over $125 million of transactions through program in 2008
State NMDP: Missouri
Slide 10Proprietary and Confidential. © All rights reserved 2009.
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Excellent product to help businesses grow▫ Current inefficiencies in subordinated debt markets
• Market for sub debt less than $5 million has been historically inefficient▫ ACP NMDP facility is source of flexible, patient capital
• Can address financial covenant concerns• Can fill collateral gap and/or enable lower interest rates
NMDP fund structure provides additional collateral which lowers risk
▫ Diversification of loan portfolio decreases investors’ risk
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State NMDP: Missouri
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State of MO Qualified Tracts
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City of St. Louis Qualified Tracts
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City of Kansas City Qualified Tracts
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Through New Markets, ACP has invested in 26businesses
Those 26 businesses currently employ approximately 1,238 people
ACP’s investment in these businesses helped to secureapproximately $140+ million in co-investment and follow-on
capital from other sources of funds
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Success of New Markets
$125+ MM of transactions through program in 2008▫ Senior and subordinated loans plus equity financings▫ Expansion and growth capital▫ Management buyouts▫ Recapitalizations
Selected MO NMDP Financings
Proprietary and Confidential. © All rights reserved 2009. Slide 16
Carbolytic Materials Co. is the first company to successfully recover a carbon black alternative suitable for commercial use from scrap tires. The company
uses its licensed technology to create ApexCM™, a lower cost, environmentally friendly alternative to carbon black that is extracted from existing rubber products.
Total Financing Need▫$16 million for start-up and project finance, including:
° $10.8 million senior secured term debt° $1.5 million subordinated debt° $3.7 equity
Why ACP / New Markets Was Needed?▫ Despite the startup, project-finance nature of the company, Advantage Capital was
able to provide a very high percentage of the total funding needed, including not only senior loans but also a deeply subordinated loan which filled a financing gap and enabled the project to move forward. This level of financing would not have been possible without the Missouri New Markets Development Program.
Slide 17Proprietary and Confidential. © All rights reserved 2009.
For over 75 years, INDEECO has been building state-of-the-art electric heating and control systems for a wide variety of industrial, marine and commercial
applications. All products are manufactured in three manufacturing facilities located in Missouri (St. Louis, Boonville, and Cuba) to insure strict quality control
and customer satisfaction.
Total Financing Need▫$18 million recapitalization, including:
• $7.1 million from ACP’s NMDP Fund° $4.0 million senior secured term debt° $3.1 million subordinated debt
Why ACP / New Markets Was Needed?▫Providing financing through the New Markets program allowed for a much more favorable recapitalization than would have otherwise been possible. Had ACP not been involved, the recapitalization would have constrained the Company and inhibited its future growth plans.
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Sunflower Food & Spice Company Ltd. LLC. is the home of sunflower seed & quality gourmet snacks - Sunny Seed Drops, Fishbowl Party Snacks, Lucky
Twist Gourmet Pretzels, Jack'snak and spectacular honey toasted nut products.
Total Financing Need▫$8 million for acquisition and relocation, including:
• $7.0 million from ACP’s NMDP Fund° $4.5 million senior secured term debt° $2.5 million subordinated debt
Why ACP / New Markets Was Needed?▫Advantage Capital was able to provide a very high percentage of the total funding needed, including not only senior loans but also a deeply subordinated loan which filled a financing gap and enabled the acquisition and relocation to move forward. This level of financing would not have been possible without the Missouri New Markets Development Program.
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Since its founding in 1991, Triad has become one of the nation’s leading manufacturers of custom wood and metal fixtures created to meet the
design and merchandise needs of the retail market.
Total Financing Need▫$28 million recapitalization, including:
• $10.0 million from ACP’s NMDP Fund° $5.75 million fully funded revolving LoC° $1.25 million senior secured term debt° $3.0 million subordinated debt
Why ACP / New Markets Was Needed?▫Using the New Markets program, ACP was able to provide the capital necessary to continue the exceptional growth of the Company.
Slide 20Proprietary and Confidential. © All rights reserved 2009.
Waste Remedies is a leading waste management outsourcing firm. Since its founding, Waste Remedies has been successful in delivering savings to
thousands of clients ranging from Fortune 500 companies to individual stores, schools and gas stations. The Company works on an innovative contingency
basis - Waste Remedies is only compensated when their client’s total costs go down.
Total Financing Need▫$8.25 million recapitalization, including:
• $7.85 million from ACP’s NMDP Fund° $4.5 million senior secured term debt° $3.35 million subordinated debt
Why ACP / New Markets Was Needed?▫By helping to recapitalize Waste Remedies using the New Markets program, ACP was successful in easing the capital constraints of the Company to provide the necessary liquidity so that the Company could grow.
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Jeremy R. Degenhart, CFASenior Vice PresidentAdvantage Capital Partners7733 Forsyth Avenue, Suite 1850St. Louis, MO 63105(314) [email protected]
Contact Information
Stephen C. KramerSenior Vice PresidentMatthew E. BadlerAssistant Vice PresidentU. S. Bancorp Community Development Corp.1307 Washington Ave., suite 300St. Louis, MO [email protected]@usbank.com