Presentation Transcript

1. Targeting and Winning with Qualified Energy Conservation BondsARRA Sales TrainingJanuary 4, 2010

2. What We’ll Cover Today Qualified Energy Conservation Bonds – Overview Why Drive QECB’s Selling Features – QECB’s How are QECB’s allocated State’s allocations (Top 25) Targeting Example – Virginia focus Highlights: Rates & Terms, Security & Structure Sales Strategy Energy Conservation Projects Green Community Program QECB Challenges Genesee County – Voice of the Customer Successful Implementation – Abundant Power Solutions Questions & Wrap Up Johnson Controls
3. Qualified Energy Conservation Bonds – Overview
4. Why Drive QECB
5. How are QECB Allocated The U.S. Treasury allocated $3.2 billion of QECB issuance capacity to State Treasurers based on population Each State was required to allocate issuance capacity to municipalities with populations >100,000 based on the municipality’s percentage of total state population –Example: If a municipality has 150,000 residents and the state has 1.5 million residents, the State must allocate 10% of its QECB issuance capacity to the municipality –If the municipality does not intend to issue QECBs, it may reallocate its issuance capacity back to the State Processes for notifying State authorities of intention to issue QECBs (and deadlines for doing so) vary
6. QECB Allocations Top 25 Allocations
7. QECB Allocations - Virginia Example Johnson Controls
8. QECB Rates & Terms Interest Rates U.S. Treasury pays QECB issuer the lesser of: The taxable rate of the bonds 70% of the Qualified Tax Credit Rate (QTCR) as of the Bond Sale date—currently 5.00% The QTCR is set daily by the U.S. Treasury and can be found here: »https://www.treasurydirect.gov/GA-SL/SLGS/selectQTCDate.htm Example: Net Interest Cost 5.50%----Taxable interest rate paid to investor 3.50%----Minus Direct Subsidy (5.00% QTCR x 70% subsidy ) 2.00%----Net Interest Cost (Taxable Rate-Direct Subsidy) Maturity Currently 18 years-Set monthly by the U.S. Treasury**
9. QECB Security & Structure Bond Security Revenues General Obligation Collateral (equipment, property, etc) Structures Bullet -All principal is paid back at maturity Serial -A portion of the bonds matures at regular intervals Term bond with sinking fund
10. QECB – An Example
11. Sales Strategy Conference Report to the American Recovery and Reinvestment Act of 2009 includes the following statement regarding Congressional intent about the broad intended scope of this term: "Also, the provision clarifies that capital expenditures to implement green community programs includes grants, loans, and other repayment mechanisms to implement such programs. For example, this expansion will enable States to issue these tax credit bonds to finance retrofits of existing private buildings through loans and/or grants to individual homeowners or businesses, or through other repayment mechanisms….Retrofits can include heating, cooling, lighting, water-saving, storm water-reducing, or other efficiency measures.― Example: Unsecured Commercial EE Loan Program Rules A maximum of 30% of QECB allocations may be used for private activity purposes All bond proceeds must be spent within 3 years or used to redeem bonds at the end of that 3 year period Issuers must have a binding commitment with a 3rdparty to spend at least 10% of the bond proceeds within 6 months of the issuance date Only 2% of the bond proceeds can be used towards cost of issuance Qualified projects are defined broadly: Examples of qualified projects include: Energy efficiency capital expenditures in public buildings – at least 20% energy consumption reduction Renewable energy production Various energy-related research and development Efficiency/energy reduction measures for mass transit Energy efficiency education campaigns Green communities programs Green Community Projects Energy Conservation Projects QECB.pdf
12. QECB Challenges Low QECB volume allocations QECB volume allocations often do not have sufficient size to wet investor appetite Issuers might want to consider a pooled issuance Investor unfamiliarity Taxable investors are not as familiar with municipal credits Build America Bonds have helped familiarize the taxable investor base with municipal credits A bond issuance takes several months to structure, market, price and close QECBs might strain bond issuance limits for some issuers
13. QECB Considerations Johnson Controls
14. Voice of the Customer Account: Genesee County, Michigan George Martini Finance Director JCI Account Leadership: Daniel Mack Energy Solutions Account Executive Johnson Controls
15. Customer needs What was driving the customer Create Jobs Cost Efficiency Finance Needed Capital Would the customer have done this without ARRA In the customers words Why did the customer implement with QECB Customer’s perspective on the QECB
16. Overview of the funding source Customer’s perspective on the QECB Type of fund or funds Customer’s perspective on the QECB How was the money distributed Customer’s approach to accessing and issuance Application process As defined Restrictions on the fund Any unique restrictions of use requirements Customers response to the fund availability
17. Customer Solution Amount of ARRA funds, interest rate $9.4M in Self Funded Improvements QECB $7,815,784 at 5.59% interest rate (1.91% Net…Total amount saved using QECB over Tax Exempt Bonds - $1.5M $1.6M Energy Efficiency & Conservation Block Grant Improvements Building Automation Controls Solar PV & Thermal Lighting/Lighting Controls IT (1200 VOIP Phones & Network Upgrade) New RTU’s/Boilers Windows/Doors Roofs (Repair and New) Retro-commissioning Fire Panel Replacement Critical Services (Mechanical, Controls, M&V) Internal Resources 4m vs Systems (Including NIS, F&S), Service and Energy Solutions Unique qualities of the job Fully funded by ARRA, Extensive IT Improvements, Solar w/Kiosk, ≈100 Local Jobs
18. Successful Implementation Abundant Power Charlotte, North Carolina Larry Ostema Managing Partner Johnson Controls
19. Successful Implementation – Abundant Power Solutions Current: Market: $171 million through 9/2010 over 15 issuances Geography: 12 of 15 issuances west of Mississippi Placement: 90% privately placed to bond purchaser(s) Security: 50% general obligations bonds; remainder revenue, including COP Opportunity: Challenges: Local government bond issuance; secured by series of junior lien credits Solution: “Corporate” conduit (i.e., state)issuance for local government “green community program,” potentially linked with “side car” for government owned facilities Potential purchasers: IOUs, manufacturers, foundations, other synergistic Johnson Controls
20. Optimal Structure – Abundant Power Solutions Johnson Controls
21. Market Strategy – Abundant Power Solutions Johnson Controls
22. Questions & Wrap Up Johnson Controls