Industry sign banking maine letter of intent computer
welcome everyone this is Chris Roni speaking welcome to the webinar I'm when he's speaking today about being bond programs and how hopefully you or your clients could help save interest expenses on eligible project financing so I'll get started in just a second but just some housekeeping matters this is the third in our business webinar series we did have earlier seminars or webinars on our insurance products provider versus leverage which is presented by Roxanne Broden and also the fame Direct Loan which is presented by Charlie Emmons those are available on our website at Fame main com this webinar will be recorded and we'll post the PDF of the slide deck and the recording on our website after the webinar concludes we'll also send a link to that to anyone who's been registered whether or not you were able to listen in today so I'm gonna get started and I just let you know from a question standpoint I'm gonna take questions you can send in your questions any time you want if I'm able to answer it along the way I will otherwise I'll answer them at the end for sure so I'm happy to take any of your questions and I'll just go ahead and get started sorry about that so you have to bear with me this is my first webinar and I'm sure I'm sure I'm gonna be less than the less than stellar but this is me probably for my high school graduation picture but again I've been here at Fame in various capacities as counsel for 23 years a couple of Fame generic slides just to give you a sense of where what fame does and where this pro the programs were talking about today where they fit into our suite of programs so this is what we call our risk continuum and so it's it ranks all our programs in accordance with the the risk profile of the borrower so you'll see the higher risk on the left and the lower risk is on the right sometimes but not always those those risk coincide with the business stage of the of the business borrower and so you know conceptual stage up to a mature business you'll see it's a very you know more conceptual stage and higher risk we have our seed capital tax credit program which I also administer and that's where investors can passive investors could get tax credits about 250 percent for investments in eligible main businesses working our way up the risk continuum to things that are beyond concept stage hopefully into operational mode we have far-famed direct loan which is a multi-purpose Direct Loan and we use that for any any different business and any any different type of project they may have we then get into some other programs that we administer for other agencies and then our most basically our bread-and-butter product which is our commercial loan insurance where we insure bank loans against losses where they not the particular borrower is not fully bankable on its own and then finally hopefully in the in the more mature and in the lower risk category we have the programs we're talking about today which is the revenue obligation securities program and the municipal securities approval program fames this just this past year just again from our famed generic standpoint we've assisted with the issuance of about sixty six million dollars worth of debt affecting about 250 businesses in every Maine County you can see here a disbursement of our various loans that we've made or helped help to facilitate and we've helped create a routine nearly 3,400 jobs just in this past fiscal year since 1983 one famous originally created we've helped deploy over two billion in loans in equity capital and created nearly a hundred thousand jobs across all of Maine's major industries so that's all for our self our self promotion slides so moving on to the topic of the day which is the bond programs that Fame runs since about five years ago January of 2014 we've issued about 440 million dollars worth of tax exempt private activity bonds I say private activity bonds I did notice from the from the attendee list that we have a wide range of attendees in terms of what their experience level is in this way anywhere from bond council I've worked with before to bankers I've worked with before and and everywhere in between private activity bonds as as the name kind of connotes as bonds issued for private activities and that that's distinguished from more governmental type purpose bonds which would be you know a town of the town of a city of Augusta issuing bonds for a road or a public building these are bonds that the government allows to be issued for private businesses and that's that's important because mmm-hmm governmental issued bonds have the benefit of being tax-exempt under federal law and so if federal if we're able to issue as a government organization fame is able to issue bonds for private businesses those bonds can be treated as tax-exempt and therefore we can pass those savings on to the bar and they're able to get a lower interest rate we'll talk about that in in a little while but just a differentiate between the different kinds of bonds that are issued by government entities these are private activity bonds that the federal tax code allows us to issue and allows us to treat as tax exempt there are limits on those so we'll talk about it a little bit later but the is so you know there is no limit on government organizations issuing bonds for for their own governmental purposes but private activity bonds are limited the IRS doesn't want us issuing countless bonds that don't get taxed so every state has a a what's called bond cap allocated to that state based on a per capita calculation Maine's is somewhere in the 300 million dollar range and that's divided amongst several other state entities that could issue bonds for private activity purposes and that would include the main Housing Authority includes the state treasurer includes the main health and higher education facility agency so we are working together with other agencies to issue these private activity bonds as as the slide states since 2014 we've issued nearly forty million dollars of these types of bonds including learn sixty-five million dollars for the financing for a large not-for-profit health information network another 108 million we've issued in financing for not-for-profit secretary secondary and private higher education capital projects so those are usually your private schools your Kensal or other types of schools and also for private colleges so it could be Thomas College things like that we've also said 42 million dollars with the financing for other healthcare facilities those could be you know either hospitals or nursing homes or other types of health care facilities sometimes office healthcare office buildings and another 75 million in financing for qualified solid waste projects and those you're not just your typical landfills and things like that but also recycling entities and anaerobic digester things like that so it's a pretty diverse pretty diverse group of financings but all you know but ultimately limited by federal tax law so you can see that they're not you know all types of businesses so on that list for today of is to two programs the revenue obligation in securities program and its corollary basically the municipal securities approval program the distinguishing factor is who's the who is the issuer and under the revenue obligation securities program fame is the issuer of the bond this program provides manufacturers solid waste facilities and 501 C 3 organizations to access that tax-exempt bond financing that I mentioned it's ideal when it's done on out what we call a conduit basis meaning that the borrower has already has its own credit arranged so that would be either it's either its current banking relationship or new banking relationship or if it's going or has is strong enough to have its own rating to go out into the public markets so Fame does offer loan insurance that I mentioned in in the fame generic slides we are able to add insurance but these are typically for very high you know very high creditworthy borrowers so not our traditional Fame client and we can offer insurance up to this as five and a quarter million but we're in the process of raising that to seven and a half million and that'll be effective fairly shortly here that says famous the issuer and that's that's relevant for a lot for many reasons one is just the way that the transaction gets papered but it's also eligible or not eligible for bank qualified treatment which is really getting too much in the weeds for this some of high-level webinar but that's an additional tax benefit that that bond holders can can have by virtue of these bonds that can ultimately further reduce the cost of borrowing but it's not it's not like will defame does work we're lumped in with the entire state of Maine as the issuer and the limits don't allow us to take advantage of that particular aspect of this of the of the federal tax code the municipal securities approval program is again I said a corollary of the revenue obligation securities program and it'd be really their only real difference is who the issuer is in this case it's the municipality in which the business is located and so that you know that maybe the City of Auburn or any city or municipality and those those entities are the ashour that does not mean that Fame is not involved because we have a role which I'll show as I go through the procedural slides in a couple of slides later from from now Fame is still involved in the process but when it comes time to documenting the the bond transaction the the particular miss palette E is the issuer in this case and that has a slight difference in terms of the fees involved for fame and it also allows because that particular particular municipality may not may not issue significant numbers of bonds in any given year they may be eligible for bank qualified treatment again that's kind of a subject for a for a higher level bond bond webinar but that's just gives you an idea of the differences between the two the features of our bond programs in terms of what you know what borrowers would likely be candidates for this you're looking for a project that's usually more than two million dollars there is no you know tax floor but just the transaction cost generally dictate that you that's probably not cost-effective to do it much below two million dollars there are transaction upper limits for certain kinds of borrowers again dictated by the federal tax code so for manufacturers that's limited to ten million dollars per you know for that particular project and because these are traditionally small manufacturers so it's not only a ten thousand ten million dollar transaction limit but there are also limits on how much how many how much capex those particular manufacturing borrowers have an in a six-year window including the the project so again these are these are traditional smaller manufacturers because that six year capex limit is twenty million dollars and so if there's a ten million dollar project there could only be another ten million dollars worth of capex either in the three years prior the three years following the transaction or for it to practice still qualified there is no limit from on a transaction size to 501c3 bonds or for the solid waste facility bonds there are other pigeonholes that are eligible types of projects but these are the ones that we encounter most of the time so I'm I'm using those as examples the best way to figure out if your projects eligible is either call me I am not by any means a tax lawyer but I I can I know I know some tax lawyers who will generally give at least a cursory view on whether or not the project might be eligible in which case further no further diligence can be recommended for determining whether your project might be eligible these are the general categories we're talking about fame statutory limit in terms of length of the term of the bond can be 30 years that's generally sufficient although some some transactions are trying to spread out over thirty five years and we haven't been able to accommodate the longer terms on those the rates everybody everybody usually first question they ask what are the rates that are offered under the program and that's it that's a great and relevant question but that that's not determined by FAMAS are usually set by the credit provider so if you're working with your bank for this transaction it's going to be whatever you negotiate with the bank if it's a public publicly issued transaction it would be whatever the market you know whatever your underwriter is able to secure for you on the open market so we do we do ho we do hope that since its tax-exempt it would be a significant or reduction from the taxable rates that you would otherwise or your clients would otherwise pay recognizing that the borrower's are not paying income tax i'm so ya are not getting income taxed that I should not say the bar C the bondholders are not paying income tax on the on the interest income that they receive from the borrower so they're able to accept or willing to accept a lower rate of return because they're not paying tax on that return so I tell people it's you know it's arranged but you know usually by rule of thumb I usually say 30% savings so depending on the size of the transaction and the length of the term that could be a very very substantial savings but it is obviously dependent on your particular situation there are additional costs for doing these types of transactions because they're complex and and involve tax law and and they require more parties to the transaction so we have just from a fame involvement standpoint we have a application fee which is $5,000 and then we charge a one-time issuance fee depending on whether or not this is a transaction that requires some of that allocated bond cap so it's 0.2% if you don't which would be like a 501 C 3 or 0.3% if you do need that allocated bond cap but that's a one-time fee it's not an ongoing or annual fee which some agencies in other states charge so you know flames involved and that we wouldn't ordinarily be involved in your transaction so that adds some level of fees you do have your usual players which is the bank the borrower and and there are particular lawyers but then you also have another lawyer involved which is your bond counsel was typically either it is or associated with a tax lawyer who can give the tax opinion that ultimately determines that this transaction is eligible under federal tax law for tax-exempt treatment and so we do allow the combination of bond counsel with either the banks counsel or the borrower's counsel so long as the parties all agree in an effort to try to reduce some of the attorneys fees of the transactions but there are but it is involve additional work so it's it's still additional cost for the transaction so again that kind of dictates the the effective minimum size of the transaction just because you are paying additional counsel fees as part of the transaction and those have to be spread you know spread out over the term of the loan and so you're measuring that against the potential savings from the tax-exempt treatment to determine whether it's a it's a worthwhile deck anomic transaction for you or your borrower Fame generally this is not a federal tax law limitation but same limitation we traditionally limit the sales of our bonds to qualified institutional buyers which is a sec term if we do or equivalent so weird Emily and and this is a little bit in the weeds but we generally want our bonds to be held by fairly very sophisticated bond holders and so those who typically banks in any bank would be would qualify and you know insurance companies other in other other well you know well or well-heeled and and well-educated investment houses would would definitely qualify but our point is that we don't want bonds sold at the retail level to the moms and pops and widows and orphans and things like that so the imagine the the whole idea or benefit to doing one of these deals rather than your traditional commercial loan would be to hopefully substantially reduce the interest cost for eligible borrowers there are two ways to do these as I alluded to earlier you can do your direct placement which is typically a negotiated transaction with with your with your lender
and that has some that has a lot of benefits the other way of doing it is issuing bonds in what most people what most laymen would want to consider kind of the more the more regular way they hear about bonds which is on the bond market and so that would involve on the rider or somebody who's gonna market the bonds on the public markets for you that requires the trustee to represent the group of bondholders that might buy the bonds each of those parties has their own lawyer so that adds additional cost just to just even to the more expensive costs of doing this transaction but it is you know competitive you know competitive interest rate type environment where you know you get the best possible types of tax advantaged rate on the other hand they are fairly rigid in the in the sense that year you're dealing with a trustee and you're with your local lender and you're therefore in time you need consent for any any change in the in the loan terms or bond terms then you're having to deal with a with with either a trustee or a group of bondholders who may or may not be that willing to go along with what your what you're asking so one of the one of the reasons that most people are doing what I call direct placements these days are for that for that flexibility and benefit to the lenders as well because they're able to retain their clients and treat this essentially as a commercial loan with some additional interest savings for the borrower and the borrower gets the flexibility of knowing the people it's working with and being able to work with one bond holder and to get any changes whether that be a covenant change or something like that without you know a much more rational setting for them and it provides the lenders and ability to you know to maintain you know their client deposit relationship and other things and as well as their loan relationship and the interest income that they gain from most of their lending relationships so we you know that we've talked a lot about bonds and and and I guess perhaps I could have started with the idea of what you know what is a bond this this diagram tries to explain without being too confusing how a bond works for those of you aren't familiar with with these types of transactions so in a traditional loan context if you're just talking about a loan I would say if you could focus on the relationship between the the fame bond and the borrower you would see that the borrower signs a note and the proceeds of the loan go to the borrower's that you know Fame in the context of this this part of the example would be the lender and the borrower would be the borrower of course and that's your traditional commercial loan transaction you know in in a bond transaction you're really it's really what I call it a two step long and so big picture wise famous issuing a bond or or essentially a promissory note to to someone in this case it's a bank and then the bank loans the money to fame and then fame turns around and Reid lends it to the borrower so that's why I say it's a two-step process where the famous use of an IOU to the bank the bank gives Fame the money the fame turns around and loans the proceeds of that transaction to the borrower for its project the borrower signs the promissory note as it would in any commercial loan transaction and all of the the loan documents are then assigned by Fame to the bank as security for fames obligation to pay the bond and the documents make clear that the borrower rather than paying Fame would just make payments directly to the bank and fame basically disappears from the transaction on an ongoing basis just so that it then kind of becomes a very very customary transaction go on a go-forward basis between the bank and its and its borrower the fame process is a mixture of state you know state law and federal law so you know this is little off-putting to look at it from this context but I would focus mostly on the middle here which is the which is the fame process of just how do we get through a bond transaction button what's involved from a step-by-step basis and and you'll see that that both the municipal issued and the famous you'd all follow the same process some of the color coding of the arrows is what is config dates who is doing what but all the same steps have to get done over to the right is what happens if you're asking for fame insurance on the same transaction it's more more of a parallel process where you're like any other for those of you who are lenders in Maine you recognize this process on how Fame approves loan insurance it's it's just a corollary process that then is applied to the to the standalone bond process that's described in the middle so procedurally what happens first you have to fill out a bond application and pay the five thousand dollar application fee there's a inducement agreement that's part of that application document that starts the clock running for your eligible project expenses we then are required to have a public hearing so we provide notice of that public hearing in the in the local newspaper where the project located and also in the state newspaper kind of external we also provide direct direct notice to any of any of the borrowers in-state competitors and so that they get all that gets in the paper or direct notice to those people of the upcoming public hearing we also require a DEP to issue a written assessment which is basically just a rundown of what permits you either already have or will need for the project and then we also need a letter of support from the municipality in which the projects located not necessarily fully supporting the project but stating that it will create an undue burden on public infrastructure so usually that's provided by the Code Enforcement Officer might be the town clerk the pig sort of depends after we have all that information we scheduled a public hearing the public hearings usually here at Fame it's also serves the purpose of what's called a tephra hearing which is a federal tax law requirement and so we combine our state law required public hearing with our tephra required public hearing we hold that hearing here at Fame and it's an opportunity on the federal tax side it's just an opportunity for people to comment on that on the transaction for against or neither from a state law perspective there are certain there are certain requirements that Fame has to find in order to approve the transaction going forward those aren't particularly onerous those those include a finding of public benefit so there might be additional jobs it might be additional tax property tax revenue or some environmental benefit so we have to find public benefit and we have to find a the absence of undue harm to in competition from in-state competitors and so this is generally not a problem if nobody objects that's that that's deemed to have deemed to have been found but we have had several transactions where we've had to actually issue a decision after carefully analyzing the competitive impacts on a project we have not yet found that the project would cause undue undue competitive detriment that's usually a process of looking at what this of what the supply chain looks like what the sales in what the sales targets look like and most the people who are against the project have issues not with those two those two areas but rather either they just don't want any competition at all or they're you know or they just not you know sometimes it's just neighbors not in favor of the project but we end up overruling those so we've gone through the public hearing now we issue a certificate of approval assuming we can make those foundational findings I described once we've done that we then published another notice which is called a notice of intent to issue that again goes in the state newspaper and in the local newspaper of the project saying we've made the required findings we intend to issue bonds to help finance it it creates a 30-day window under state law for objections to be filed in the in the court and appeal and assuming there is no appeal then the transaction can go forward and is deemed to be without you know without without the ability to be undone legally so during that during that 30-day window is when assuming we haven't done a lot of the work already is a bond Council and fame and the borrower and the bank are all working together to get the documentation that's necessary for the transaction in final form and to actually close on the typically on the on the 31st or second day and as part of that as part of that closing we would if it's a if it's a deal that requires the the allocated bond cap we would issue that whether it's either it's a issued to ourselves essentially where the issuer or we would issue it to the Meuse if they're the issuer and again you would see that on from the if you see the blue era the the blue arrow to the left here is where a municipal Deal kind of skips over the Fame process to the allocation so that although the documentation is done at the Miss Patti level if it's a municipal issues Melissa municipal II issued security rather than a famous you'd security but again same same general steps so that's a that's a rough overview of the programs I know it's been kind of high-level and there's some who probably heard nothing new than what they already knew but hopefully it was a beneficial or a benefit to most of you and one of the things that I get a lot of questions on this program so I mean my my contact information is on the some other earlier slides which will be posted and I I get a lot of calls and your help you're welcome to call me anytime to talk through a project or talk through the process to kind of get a better sense of what's involved I am always available and happy to happy to speak with anybody so I'm happy to take any questions and like I said if there are no questions now I can certainly you know people can email me with questions after the fact and that em or call me and I'd be happy to answer those any time so I'll just wait a minute another minute or two to see if I I know I can't I know I couldn't have been that thorough to to leave no questions I probably created more than I answered but again and this isn't your one time to get your question answered you're happy to reach out separately I'm gonna wait a few minutes before closing down to see if any questions come in so I do have a question somebody asked about whether I had recent examples of transactions with manufacturers and so going strictly by a memory here the one the one of the last ones I recall was we did a transaction for a company called Cinco which is a glass panel manufacturer in Westbrook we also recently did a transaction for slaughter Beck and Foss which is a I think up some food especial tea food manufacturer it was in Portland I think they moved out to Westbrook we've done trying to think these are small manufacturers those the two that come immediately to mind any other questions out there yeah I'm gonna I'm gonna go ahead and wrap up then and again anybody who has any questions just look at this look at my contact information and reach out be happy to chat with you and hopefully this was helpful and I look forward to working with you working with you in the future this is our commercial team and you can reach out to any of them on any any fame business matter including bond transactions or potential bond transactions so again thank you feel free to reach out whenever you have a moment thanks you
