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New Markets Tax Credit Program Overview
Presented to | May 5, 2014
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Agenda
n The TD Community Development Corporation Team
n New Markets Tax Credit Program
n New Markets Tax Credit Program & Legislative Update
n TD Community Development Corporation Program Update
n 2013 New Markets Tax Credit Projects
n Structure Options – Simple Model and Leveraged Model
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TDCDC Team
Lance D. Player Deployment Director
TD Community Development Corporation
864.591.8691
Corey T. Buchanan Compliance Director
TD Community Development Corporation
864.552.9046
Kevin M. Short President
TD Community Development Corporation
864.255.8965
Rob Hoak Regional President - Carolinas
TD Bank, NA
864.552.9139
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TDCDC Team
n Lance D. Player – Deployment Director - As Deployment Director, Mr. Player works with both public and private companies in North Carolina, South Carolina and Florida to finance capital projects using NMTC financing. His primary responsibilities include managing the deployment of NMTC allocation and monitoring the bank’s existing NMTC portfolio. Mr. Player has been instrumental in helping the bank develop policies and procedures for its NMTC program, including credit policy and internal processes. Prior to taking his current role in February 2013, Mr. Player was a Commercial Lender with both TD Bank and SunTrust Bank in South Carolina. He currently serves on the NMTC Coalition Investor Advisory Board of Directors which is a national board supporting the NMTC program. Mr. Player received a Bachelor of Arts degree in Finance and Economics from Wofford College.
n Corey T. Buchanan – Compliance Director - Mr. Buchanan is TDCDC’s NMTC Compliance Director. In this role he works closely with the President and Deployment Director in all aspects of NMTC compliance and portfolio management. Mr. Buchanan has been working with TDCDC’s NMTC program since April 2012 and has played an integral role in establishing polices and procedures for TD Bank. Prior to joining TDCDC / TD Bank, Mr. Buchanan served as the NMTC Program Manager for Greenville New Markets Opportunity (GNMO) and implemented the organizational, deployment and compliance related activities of a round IV $89 million NMTC allocation. Additionally, Mr. Buchanan worked for SunTrust Banks, Inc. from 2001 until joining GNMO in 2006. Buchanan serves as the Treasurer on the Christ Church Episcopal Preschool Board of Directors and is an Operating Board Member of Greenville New Markets Opportunity II (a certified CDE). Mr. Buchanan received a Bachelor of Science degree from Clemson University.
n Kevin M. Short – President - Kevin Short is the President of TDCDC and oversees all operations and personnel. Mr. Short coordinates TDCDC’s activities with TD Bank and ensures that TDCDC has the resources it needs to effectively manage its activities. Mr. Short is a Senior Vice President and Manager of SC Middle Market banking for TD Bank. During his seven year tenure with TD Bank, Mr. Short has generated over $800 million in corporate loans, and produced in excess of $15 million in fees associated with this book of business. A 31-year veteran of corporate banking, Mr. Short spent 22 years with Wachovia Bank, N.A., in various corporate banking roles, the most recent of which was Regional Corporate Banking Manager in Greenville, South Carolina. Mr. Short received a Bachelor of Science degree from Clemson University.
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New Markets Tax Credit Program
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What are New Markets Tax Credits?
n Administered by the U.S. Dept of Treasury’s Community Development Financial Institutions Fund (CDFI Fund)
n Enacted December 21, 2000 as part of the Community Renewal Tax Relief Act
n Encourages Private Capital Investment in Low Income Communities
n Provides a 39% Federal Tax Credit to Investors (TD Bank)• Claimed over 7 year compliance period• 5% in years 1 through 3• 6% in years 4 through 7
n June 10, 2002 - First Notice of Allocation Availability
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How do they work?
n Provides a Federal Income Tax Credit for Investors that make Qualified Equity Investments(QEIs) into Community Development Entities (CDEs).
n Our CDE is TD Community Development Corporation.
n CDEs in turn use the proceeds of these investments to make Qualified Low-Income Community Investments (QLICIs).
n QLICIs include, among other things, investments in businesses and real estate projects (QALICBs) in low-income communities.
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What Qualifies an Area?
n Projects in census tract with an indicator of high distress
n The most significant indicators are:• Poverty > 30%• Median incomes < 60% of area median income• Unemployment rates > 1.5 times the national average
n Fourteen additional indicators if the above do not apply
n 2010 Census determines qualifications
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What Qualifies a Borrower?
n In accordance with IRS Code Section 45(d)(2), an entity can be termed as a QALICB under the following circumstances:
• > 50% of its total revenue is from operations occurring in any low-income community
• A substantial portion of its tangible property is within any low-income community
• A substantial portion of its employee services are performed in any low-income community
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New Markets Tax Credit
Program & Legislative Update
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NMTC Program Update
n Through the first ten rounds of the NMTC Program, the CDFI Fund has made 749 awards totaling $36.5 billion in tax credit allocation authority.
n A total of 310 applications were submitted under the 2013/2014 round of the New Markets Tax Credit Program. The applicants requested an aggregate total of $25.8 billion in NMTC allocation authority.
n 2013 Awards have been delayed and they are expected to be announced in May/June 2014. The Treasury Department will most likely combine the 2013/2014 Awards and authorize $8.5 billion in allocation authority versus the previously announced $3.5 billion.
n The industry expects to see the CDFI Fund lower the average annual award for each CDE and increase the number of successful applicants. As a result, most NMTC deals going forward will have multiple CDEs who are contributing a smaller percentage of their allocation.
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n The Ash Center at Harvard University named the New Markets Tax Credit Program as one of the “Top 25 Innovations in Government”.
n Senators Rockefeller (D-W.Va.) and Roy Blunt (R-Mo.) introduced legislation to provide a permanent extension of the NMTC Program called, “The New Markets Tax Credit Act of 2013”.
• On January 28, 2014, Rep. Richard Neal (D-MA) introduced HR 3939, the “Invest in United States Act of 2014”. The bill includes a permanent extension of the NMTC program.
n Discretionary spending in the Federal budget is trending downward. Since 2010, discretionary spending has been cut by more than $175 billion. All tax credit programs are under review.
n Congressman Dave Camp is leading Tax Reform talks in Washington. The House Ways and Means Committee will work with the Senate Finance Committee to finalize a framework for comprehensive tax reform. Currently, both committees are meeting weekly to discuss the plan.
NMTC Legislative Update
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TD Community Development Corporation
Program Update
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TDCDC NMTC Update
n TDCDC and its predecessor CFCDC has been a four-time award winner under the NMTC Program totaling $325 million in allocation awards.
n Since 2007, TD CDC has financed 34 total projects using NMTCs totaling an investment of more than $300 million.
n In 2013, TD CDC financed 8 projects in South Carolina and Florida.
n TDCDC deployed $93 million of allocation in 2013 which was the most allocation deployed in the country.
n TDCDC applied for an additional allocation of $125 million in Sept. 2013 and we expect announcements in May/June 2014.
• The average award in 2012 was $45 million.
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TDCDC Allocations
* The Bank has five years to deploy an allocation; the balances accumulate
$9,096,415$315,903,585$325,000,000 Total$9,096,415$55,903,585$65,000,000 2011
$0$60,000,000$60,000,000 2009$0$100,000,000$100,000,000 2008$0 $100,000,000 $100,000,000 2007
AvailabilityAmount DeployedAllocationYear
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TDCDC Projects - Jobs Statistics
5,5112,3363,17534Total1,30845984913Community Projects3141431714Colleges/Universities
9644804845Non-Profit6612803814Healthcare
2,2649741,2908ManufacturingGrand Total JobsIndirect JobsDirect Jobs# of ProjectsIndustry
* Jobs are calculated based on information reported by the QALICB to TDCDC.* Indirect jobs are construction and/or supplier related.
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2013 New Markets Tax Credit Projects
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2013 TDCDC NMTC Deals
$ 4,000,000 $ 4,700,000
$ 22,180,000
$ 22,180,000Real Estate / Equip Financing
$ 11,000,000
Equipment Financing
$ 25,200,000
Real Estate Financing
$ 15,000,000
$ 10,000,000
Equipment Financing
$ 4,000,000
$ 3,900,000
$ 22,180,000Real Estate / Equip Financing
$ 4,000,000
Equipment Financing
$ 12,000,000
Real Estate Financing
$ 10,000,000
Real Estate Financing
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Structure Options – Simple Model & Leveraged Model
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TD Community Development Corporation
Borrower
Stakeholder Investment Thesis
Community§Job Creation§Tax Base Increase§Per Capita Income Increase§Community Revitalization
Borrower§Equity Kicker: $4,563,000§Low Weighted Cost Of Capital§Interest Only Loan For 7 Yrs§Appraisal Advantage
TD Community Develop Corp§Full Relationship§4.75% sub-allocation fee on total allocation
TD Bank, N.A.§39% Tax Credit over 7 Years
New Markets Tax Credit Simple Model
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New Markets Tax Credit Leverage Model
TD Community Development Corporation
Borrower
Stakeholder Investment Thesis
Leveraged Lender§The loan from Leveraged Lender (“LL”) can be by an affiliate who is using another bank’s loan proceeds for the LL. §The other bank will need separate collateral from the NMTC collateral.
Borrower§Equity Kicker: $4,563,000§Low Weighted Cost Of Capital§Interest Only Loan For 7 Yrs§Appraisal Advantage
TD Community Develop Corp§4.75% sub-allocation fee on total allocation
TD Bank, N.A.§39% Tax Credit over 7 Years
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NMTC Loan Structure Summary
n The A Note and the B Note are interest only for 7 years• In the Simple Model, the bank may require a sinking fund for the A Note.
n The Borrower’s interest rate is typically 50% below market.
n Funds may be used to finance the acquisition of real estate, all types of capital expenditures (equipment purchases), and property up-fits (soft costs)
n The Borrower must spend the NMTC proceeds within 12 months of the closing date
n New equipment or real estate purchased is often used as collateral at an 80% LTV
n At the end of Year 7, a Cancellation of Debt event occurs• IRS codes 61(a)(12), 108, and 1017 may apply• Several strategies are available to minimize or avoid the tax liability (consult your
CPA)
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TD CDC Team
Lance D. PlayerVice President & Director of Sales and Marketing
TD Community Development Corporation
p. 864.590.6128
Corey BuchananVice President & Compliance Director
TD Community Development Corporation
p. 864.522.9046
