New Markets Tax Credits

1. New Markets Tax Credits F. Robert Wilson, CEI Capital Management LLC September 26, 2013

2. New Markets Tax CreditsOne tool in the Economic Development Finance Toolkit

3. New Markets Tax Credits40,00 ft. view of 1) What they are 2) Which jobs they are appropriate for?

4. 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)

5. Project Finance vs.Growth Capitalvs.Working Capital

6. NMTC DEALS ARE COMPLEX…so always hold this thought: Traditional Project Capital Stack

7. NMTC DEALS ARE COMPLEX…so always hold this thought: NMTC Project Capital Stack

8. NMTC DEALS ARE COMPLEX…so always hold this thought: NMTC Project Capital Stack

9. NMTC DEALS ARE COMPLEX…so always hold this thought: NMTCS PROVIDE APPROXIMATELY 20% OF THE PROJECT CAPITAL AS LOW/NO-COST, NON-DILUTIVE EQUITY! NMTC Project Capital Stack

10. WHO? WHERE? WHY?

11. WHERE?

12. 1. GEOGRAPHYQualified 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

13. 2. Targeted PopulationsProject 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”

14. WHO / WHY?

15. WHY? The Answer Depends on Who You Ask

16. 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

17. 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

18. NMTCs = $1,337,566 + $ Back-end fee (5%) Equity = $1,006,388 $343 CCML NMTC Mgr. (0.01%) Front End Fee RDLEG Loan $360,000 Plymouth Community Health Center Plymouth, New Hampshire As of 8/01/06(a) Equity Investor Bank Consortium (Owns 99.99% of Pooling LLC) Franklin Savings Bank = $377,395.50 Woodsville Guaranty Savings Bank = $377,395.50 Community Guaranty Savings Bank = $251,597.00 Total Bank Consortium Equity = $1,006,388.00 Debt Service Loan Payments CCML Managing Member (0.01%) Prime “A” Debt Bank Consortium Loan= $1,647,212 $101 $115,000 CRDC Loan CCML New Hampshire Investment Fund II LLC Investor Pooling Fund LLC Total = $3,433,600. (Owns 99.99% of CDE) debt service $415,000 CDBG Loan debt service $250,000 * Note: $3,600 held in operating expense reserve account. CDFA Loan debt service QEI $3,430,000 NMTCs $1,337,700 CCM Real Estate III LLC CDE Loan $3,320,000. Debt Service Loan Payments CRDC Plymouth Community Development Corp. QALICB CRDC Loan $71,100 Mid-State Health Center Tenant

19. DEAL EXAMPLES

20. EXAMPLE NMTC PROJECT • $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…

21. EXAMPLE NMTC PROJECT OUTCOMES • 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)

22. Brunswick Landing MHC USA, LLCBrunswick, Maine.(Whiteriver Arizona)

23. Fort Apache Timber Co.(Whiteriver Arizona)

24. Westervelt Pellets I LLCAliceville, Alabama(Whiteriver Arizona)

25. Emmi Platteville, Inc.Platteville, Wisconsin

26. Axio Green, LLCGreenville, Massachusetts.Platteville, Wisconsin

27. Plymouth Community Health CenterPlymouth, New Hampshire

28. REMEMBER!!!! NMTCS PROVIDE APPROXIMATELY 20% OF THE PROJECT CAPITAL AS LOW/NO-COST, NON-DILUTIVE EQUITY! NMTC Project Capital Stack

29. SOURCES OF CAPITAL FOR A GROWTH COMPANY High Highest Risk Lowest Risk Public Market Equity Capital Required Earnings Venture Capital Debt Capital Seed Capital Low Concept Planning & Verification Start-up Revenue Generation Growth Mature Growth Early Stage Expansion Acquisition - Buyout

30. SOURCES OF CAPITAL FOR A GROWTH COMPANY High Highest Risk Lowest Risk Public Market Equity Capital Required Earnings Venture Capital Debt Capital Seed Capital Low Concept Planning & Verification Start-up Revenue Generation Growth Mature Growth Early Stage Expansion Acquisition - Buyout

31. RISK VERSUS BUSINESS GROWTH STAGES SOURCES OF FINANCING & REASONS FOR BORROWING RISK & SOURCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Specialized Lenders, Banks with Guarantees, Venture Capital Banks With or Without Guarantees Personal Savings, Relatives Personal, Venture Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Banks - Workout . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Banks Low 1 2 3 4 5 6