Financing Programs Tracy Allen

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  • The program requires the creation or retention of one job for each $15,000 of loan proceeds within a 3 year period. There is a Priority Investment Area map for eligible areas. The office of Strategic Research updates the map on January 1 st and July 1 st of each year.e
  • When are personal guarantees required? For privately held companies, occasionally we will consider a Letter of credit in lieu of a personal guarantee. If the company has sales greater than $150 million and impressive financial performance.
  • The Ohio Enterprise Bond Fund allows large and small credit worthy but unrated business to access to the national capital markets. Through the Ohio Enterprise Bond Fund the ODOD issues bonds, the proceeds of which are provided to businesses for eligible projects in the form of a loan. ODOD pledged the 166 repayment stream as an additional back up reserve. Standard and Poor's considers the performance of the existing OEBF portfolio and the performance of the 166 Direct Loan

Transcript

  • 1. Ohio Department of Development Financing Programs Ohio Economic Development Association Office of Financial Incentives October 14, 2009
  • 2. Financing Programs
    • Loans to Companies
      • 166 Direct Loan
      • Ohio Enterprise Bond Fund
      • Research and Development Investment Loan Fund
      • Innovation Ohio Loan fund
    • Loans to Communities
      • Rural Industrial Park Loan
      • Urban Redevelopment Loan
  • 3.  
  • 4. 166 Direct Loan
    • 166 Direct Loan Program
      • The 166 Loan Program was created in 1982 to promote economic development in the State of Ohio.
      • Created a large revolving loan fund out of which loans are made. As repayments are collected, new loans are made.
      • The 166 Loan Program provides low-interest loans to businesses willing to commit to create new jobs or preserve existing employment opportunities in the State of Ohio.
  • 5. 166 Direct Loan
    • Available Funding
      • Loan amounts of $500,000 to $1 million
      • Typically between 30-50% of the projects allowable costs
      • Up to $15,000 per job ($35,000 in priority investment areas)
      • Partner with bank and equity
    • Rate and Term
      • Interest rates are fixed
      • Term conditions upon the useful life of the assets
        • Maximum of up to 15 years for real estate
        • Maximum of up to 10 years for machinery and equipment
  • 6. 166 Direct Loan
    • Collateral /Security Requirements
      • Shared first priority mortgage and/or lien position on assets financed loan proceeds
      • Personal guarantees from owners with 20% ownership in company
        • May be required:
          • Corporate guarantees from related companies
          • Full or partial letter of credit
          • Life insurance on key business owners
      • Equity Requirement - 10% of the loan amount
      • No pre-payment penalty
      • Take-out financing
        • Funds will only be disbursed once the project has been completed. The borrower will be responsible for securing financing for project related cost through loan closing and project completion.
  • 7. 166 Direct Loan
    • Eligible Businesses and Costs include:
      • Manufacturing, Research and Development, Distribution
      • Retail projects are ineligible
      • Fixed asset investments
        • Land and building acquisition
        • Building expansion, renovation and construction
        • Equipment purchases
        • Acquisition of ongoing business fixed assets
        • Limited soft costs
  • 8. Ohio Enterprise Bond Fund
    • Ohio Enterprise Bond Fund
      • ODOD earned a AA- Rating by Standard & Poor’s
      • Creating a series of reserve accounts and adhering to strict credit criteria
      • The ODOD requires each borrower to put 10% of bond amount into a reserve fund
      • ODOD funded a $10 million program reserve
      • ODOD pledged the 166 repayment stream as an additional back-up reserve
      • Enables access to borrow at rates comparable to companies such as P&G and Citigroup
  • 9. Ohio Enterprise Bond Fund
    • Available Funding
      • Up to 90% of the total eligible project costs
        • Letter of credit required, equal to 10% of the OEBF Amount
      • Loan amounts between $1.5 million and $10 million, up to 90% of the project’s allowable costs
      • Up to $75,000 per job ($100,000 in Priority Investment Areas)
    • Term
      • 5 to 20 year loan terms
        • Equipment loans are limited to 120% of average life of the project (typically 7-10 years)
        • Real estate loans will generally be 15 - 20 years.
  • 10. Ohio Enterprise Bond Fund
    • Debt Service Reserve
      • Each borrower is required to fund a debt service reserve (10% of bond amount)
        • Funded with cash or a bank letter of credit
        • If the borrower defaults on the loan, the reserve is forfeited and used by the State to make debt service payments
        • If the borrower does not default on the loan, the reserve is used to pay the borrower’s final 10%
    • Collateral/Security (same as 166 Direct Loan)
      • Shared priority mortgage and/or lien position on assets financed loan proceeds
      • Personal guarantees from owners with more than 20% ownership in the company
      • May be required:
        • Corporate guarantees from related companies
        • Full or partial letter of credit
        • Key life insurance
  • 11. Ohio Enterprise Bond Fund
    • Eligible Businesses and Costs may include:
      • Manufacturing, R&D, Distribution, Headquarters, Retail projects are ineligible
      • Purchase of land and/or building; Machinery and equipment, building construction and/or renovation costs; long-term leasehold improvements; purchase of ongoing business fixed assets; limited soft costs directly related to the fixed-asset purchasing
      • Refinancing is ineligible
      • Fixed interest rates, based on taxable/tax-exempt (also based on the AA- rating)
  • 12. Ohio Enterprise Bond Fund
    • Prepayment
      • Make-whole provision
        • A provision that allows a borrower to prepay the remaining fixed rate term debt. However, the borrower has to make an additional payment that is derived from a formula based on the net present value of the future debt payments.
        • Can be significant, which is why such provisions are rarely invoked .
  • 13. Current OEBF Rates As of September 14, 2009
  • 14. Research and Development Investment Loan Fund
    • R&D Fund
      • Created to encourage private sector research and development investments that will create and retain high wage jobs
      • Loans range in size from $1 million to $5 million, up to 50% of allowable project costs
      • No specified dollar per job ratio, but job creation is considered
      • Dollar-to-dollar (non-refundable) tax credit equal to the amount of principal and interest repaid on the loan, up to an annual maximum credit of $150,000
      • Fixed interest rate, 5-15 years
  • 15. Research and Development Investment Loan Fund
    • Eligible project costs
      • Purchase of land and/or building
      • Purchase of machinery and equipment
      • Building construction and/or renovation costs; if the project involves new construction, the business must occupy at least 75 percent of the premises
      • Long-term leasehold improvements
      • Purchase of an ongoing business’ fixed-assets
      • Refinancing is ineligible
  • 16. Research and Development Investment Loan Fund
    • Collateral/Security Requirements (same as 166 Direct Loan & OEBF):
      • Shared priority mortgage and/or lien position on assets financed with loan proceeds
      • Personal guarantees from owners with more than 20% ownership in the company
      • May be required:
        • Corporate guarantees from related companies
        • Full or partial letter of credit
        • Key Life insurance
    • Pre-payment
      • The ODOD imposes no pre-payment penalty.
    • Take-Out Financing
      • Project must be completed
  • 17. Innovation Ohio Loan Fund
    • IOF
      • Created to assist existing Ohio companies within targeted industry sectors to:
        • Develop next generation products and services
        • Pursue viable business opportunities
        • Generate high wage employment opportunities for Ohioans
    • Targeted Industry Sectors involving the production or use of
      • Advanced Materials
      • Instruments, Controls and Electronics
      • Power and Propulsion
      • Biosciences
      • Information Technology
  • 18. Innovation Ohio Loan Fund
    • Investment Focus
      • Support capital needs of established Ohio companies that have:
        • A recent history of positive cash flow;
        • A minimum of three years of operating history; and
        • Attracted or are likely to attract additional third party capital to the project.
      • Under limited circumstances, a company that does not have a recent history of positive cash flow may be considered if it has:
        • Developed a proven product for a proven market;
        • Significant customer orders and reasonable prospects for rapid sales growth; and
        • Obtained the financial backing of professional investors and has reasonable prospects of continued backing from such investors. May require additional equity investment in the company as a condition to granting a loan
  • 19. Innovation Ohio Loan Fund
    • Eligible Innovation Costs
      • The Innovation Ohio Loan Fund (IOF) will provide capital financing for the acquisition of technology, facilities, equipment and other capitalized costs at competitive rates
      • The IOF will finance up to 75% of allowable costs on projects from $500,000 to $2 million
      • Allowable costs are those that can be capitalized under Generally Accepted Accounting Principals (GAAP), including :
        • Software and Software Development
        • Tooling and Molds
        • Machinery and Equipment
        • Land, Buildings, Renovations, Leasehold Improvements
        • Intellectual Property Protection Costs
        • Computer Equipment
        • Technology Acquisition
      • Loans will be awarded based on in-depth due diligence and credit analysis
  • 20.
    • Applicant Contribution
      • Applicant must fund at least 25% of allowable project costs either
        • Directly,
        • Through third party financing, or
        • Through a combination
      • Not acceptable applicant contribution
        • Expenditures made by or on behalf of the applicant (without ODOD approval)
        • In-kind contributions of labor, equipment or similar items
    • Loan Term
      • Generally 4 to 6 years, in limited circumstances, the ODOD may consider longer terms, will not exceed 15 years or the average useful life of the assets, whichever is earlier
    • Interest Rates
      • Prime plus up to 2%
    • Participation Fee
      • A participation fee equal to 10 percent of the maximum drawn principle will be payable upon maturity of the loan.
    Innovation Ohio Loan Fund
  • 21. Innovation Ohio Loan Fund
    • Collateral/Security Requirements
      • First priority mortgage and/or security position on assets including intellectual property
      • ODOD will consider subordination to providers of traditional senior debt
      • Personal and/or corporate guarantees may be required
      • Life insurance on key business owners, partners and/or managers; and
      • Other comparable credit enhancement
  • 22. Innovation Ohio Loan Fund
    • Application & Review Process:
      • Submit a Preliminary Application
      • Meet with Credit Analyst if IOF seems to be a fit
      • Credit Analyst will recommend submittal of full IOF Loan Application or other potential sources of funding if IOF is not a fit
      • In-depth due diligence and credit analysis by Credit Analyst and Third-Party Reviewer (typically six weeks in duration)
  • 23. Loan Fees: All Loans to Companies* *Loan fees are non-refundable. Loan Program Application Fee Commitment Fee Servicing Fee Other Fees 166 Direct Loan $1,500 2% of first million and 1% of balance 1/12 of 0.25% monthly - OEBF $1,500 $20,000 1/12 of 0.25% monthly 2-3% closing fees R&D Loan Fund $1,500 1% but capped at $50,000 1/12 of 0.25% monthly - IOF $1,500 2% 1/12 of 1% monthly 10% of principal due on final pmt
  • 24. Covenants: All Loans to Companies
    • Prevailing Wage
      • Required to be paid for construction, renovation and installation of machinery and equipment
      • Rates and payment of prevailing wages are determined by the Ohio Department of Commerce, Wage and Hour Bureau
      • Potential borrower can find the prevailing wage by:
        • Going to http://www.com.ohio.gov/laws/
        • Ask for a Prevailing Wage Bid
  • 25. Covenants: All Loans to Companies
    • Company must maintain operations in Ohio throughout the term of the loan
    • ODOD may limit distributions to preferred and common stockholders
    • Should the company complete an IPO, ODOD may require the repayment of the outstanding loan and all associated fees
    • May require cross-default/acceleration with other lenders
  • 26. Rural Industrial Park Loan
    • Rural Industrial Park Loan Program
      • Created to provide direct loans to local communities and other eligible applicants committed to creating well-planned industrial parks.
    • Eligible Applicants
      • Port Authorities, Community Improvement Corporations, Community based organizations, Private Developers, and other Nonprofit economic development entities
    • Eligible Industrial Parks
      • Manufacturing, distribution and warehousing, research and development, high technology or higher paying service businesses
  • 27. Rural Industrial Park Loan Rural Development Initiative Fund
    • Available Funding
      • Up to $500,000 in direct loans
      • May also qualify for grant assistance from the Rural Development Initiative Fund
      • Maximum combination of loans and grants is the lesser of $1,000,000 or 75% of the total project costs.
      • Grant cannot exceed the lesser of $500,000 or 37.5% of the eligible project costs
      • Up to a 15-year term at a fixed interest rate with a deferral of principal & interest up to 5 years
    • Eligible Area
      • Appalachian, distressed, labor surplus and situational distressed counties designated by the ODOD’s Priority Investment Area Map.
        • Map published January 1 st and July 1 st of each year by ODOD’s Office of Strategic Research and can be found by checking the maps link at http://www.odod.state.oh.us
  • 28. Rural Industrial Park Loan
    • Eligible costs include:
      • Acquisition, infrastructure, site preparation, utility hook-ups, improvements to water and rail access
    • No Job Creation Required
    • Private Financing Requirement
      • Require the applicant and a conventional lender participate in the project of at least 25% of the project costs
        • Conventional lender will be required to act as a fiduciary agent
  • 29. Rural Industrial Park Loan
    • Collateral/Security
      • Shared first priority mortgage and/or lien positions
      • Full or partial letter of credit
      • Personal guarantees and
      • Guaranteed from the participating county or municipality
    • Prepayment
      • No prepayment penalty
      • During the deferral period, if property is sold or lease ODOD may require repayment of the outstanding loan amount
  • 30. Urban Redevelopment Loan
    • URL Program
      • Provides low interest loans municipalities or non-profit economic development organizations to improve real estate to entice private business investment in distressed urban locations
    • Eligible Project Costs
      • Purchase land and/or building, brownfield clean-up, infrastructure and site improvements, demolish buildings and remove building, construct streets, roads and bridges
    • Available Funding
      • Up to $5 million or 40% of project costs
      • Individual municipality is eligible for a maximum outstanding loan balance of up to $10 million
      • An applicant may undertake no more than 3 projects at a given time
  • 31. Urban Redevelopment Loan
    • Term
      • Up to 15 years
      • Payment may be deferral up to 5 years
      • Balance amortized within the remaining term of the loan
      • Sale or lease may trigger prepayment
    • Interest Rate
      • 0% for first 5 years, Beginning year 6, interest rates are fixed at/or below prime rate.
    • No Job Requirement
  • 32. Urban Redevelopment Loan
    • Collateral/Security
      • Shared first priority mortgage and/or lien positions
      • Full or partial letter of credit
      • Cash
      • Pledged security interest in an unfettered revenue stream of the municipality
      • Other types of credit enhancement, if necessary
    • No Prepayment penalty
  • 33. Loan Fees: Loans to Communities *Loan fees are non-refundable. Loan Program Application Fee Commitment Fee Servicing Fee Other Fees Rural Industrial Park Loan $500 1% 1/12 of 0.25% monthly - Urban Redevelopment Fund $1,500 2% of first million and 1% of balance 1/12 of 0.25% monthly -
  • 34. Applying for Loans
    • First point of contact is your regional Business Development Manager, who will work with you in sorting through financing options
    • Your Business Development Manager will work with you and your prospect in compiling the information needed to apply for loan financing (in addition to other incentives the state may offer)
    • Once your Business Development Manager has compiled the information, they will connect with a Credit Analyst within the ODOD, Office of Financial Incentives and work through credit analysis/due diligence
  • 35. Application Checklist
    • History and description of business
    • Description of market, industry, and competition
    • Resumes of owners and/or key management
    • Project description including sources and uses
    • Business financial information:
      • Three years historical income statements & balance sheets
      • Interim financial statements (less than 90 days old)
      • Financial projections for three years (privately held)
  • 36. Application Checklist (cont’d)
    • Business financial information for the last three fiscal years on affiliate businesses
    • Personal financial statement from all 20% owners
    • Bank commitment and/or term sheet
    • Phase I environment audit
    • Cost verification-purchase agreement and/or third party cost estimates
    • Appraisal by qualified appraiser
  • 37. Timing Application Deadlines 2010
  • 38. Portfolio Program Total Loans Total Loans Total Investment New Jobs Retained Jobs Average Wage Outstanding Principle Balance 166 Direct 198 $390,719,998 $2,009,749,186 14,992 23,249 $16.25 $258,347,051 OEBF 38 $239,510,000 $443,838,436 4,065 2,836 $19.06 $169,665,000 IOF 64 $66,864,907 $97,730,552 2,557 862 $30.17 $47,231,404 R&D 43 $111,003,000 $447,590,159 3,133 9,912 $22.61 $68,699,320 Rural Industrial Park 25 $12,687,500 $48,089,938 N/A N/A N/A $8,777,227 Urban Redevelopment 6 $19,938,353 $111,129,600 N/A N/A N/A $23,266,315 Totals 374 $840,723,758 $3,158,127,871 24,747 36,859 $22.02 $580,151,697
  • 39. For More Information:
    • Web Site:
      • For all ODOD debt financing information discussed today or more detailed information
      • http://development.ohio.gov/EDD/Loans_Grants.htm
    • Questions? Contact:
    • Office of Financial Incentives
    • State of Ohio, Department of Development
    • (614) 466-5420