1. NMTC Funding
Emily Chad
December 11, 2015

2. ©2015 Fredrikson & Byron,P.A.
Funding
(assumes a $10 million NMTC investment and leveraged debt from affiliated
entity)
Investment
Fund
Sub-CDE
Leveraged
Lender
CDE
Project LLC (owns
facility)
Investor
1. $2.7M equity
investment
2. $7.3M loan
Secured by Fund’s interest in
Sub-CDE
3. $10M equity
investment
4. $1,000 equity
investment
5. Loans:
A: $2.7M
B: $7.3M
Bank;
commercial
loan of $7.3M
© 2015 Fredrikson & Byron, P.A.2

3. © 2015 Fredrikson & Byron, P.A.
Cash Flow
Investment
Fund
Sub-CDEs
Leveraged
Lender
CDE
Project LLC (facility)
Investor
4(b). Tax Credits
4(a). Debt Service
3. Distribution
2. Compliance Fees
1(b). Debt
Service
Senior Lender
1(a). Debt
Service
Bank
5. Debt Service
3

4. After 7 Year Compliance Period
© 2015 Fredrikson & Byron, P.A.
Investment
Fund
Leveraged
Lender
Project LLC (facility)
Investor
Senior Lender
1(a). Debt
Service
Bank
• Investor sells Investment Fund to
borrowerorrelated entity forde minimis
amount (usually $1,000)
• Loan tracking investor’s equity amount is
essentially “forgiven”(this is taxable
income!)
• Loan tracking the bank loan amount is
refinanced andremains outstanding at
commercial rates
4

5. Qualification
• Assets/employees of borrower are used in low income census tract
• “Targeted populations” is an alternative qualification
• “Gap filling” financing; investors are looking for projects that would
not be completed without tax credit subsidy
• Prohibited business activities (farming, massage parlor, golf course,
sale of liquor, gambling, etc.)
• Prohibited assets: more than 5% of assets are collectibles,
“nonqualified financial property”
© 2015 Fredrikson & Byron, P.A.5

6. What projects are a good fit?
• Rural projects
• Projects that create jobs; manufacturing, health
care, education
• Shovel-ready
• Source of financing available to cover 70-80% of
the project costs
• CDE-specific rules; limited geographical area,
equipment financing, non-real estate/real estate
© 2015 Fredrikson & Byron, P.A.6

7. Pitfalls
• FEES!!!
• Calculate the expected net benefit up
front; some projects should not use
New Markets
• Restrictions during the 7 year
compliance period
© 2015 Fredrikson & Byron, P.A.7

8. Emily Chad
Business and Tax Group
• Email: echad@fredlaw.com
• Phone: (612) 492-7397
© 2015 Fredrikson & Byron, P.A.8
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication
is not intended or written to be used, and cannot be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code, or
(b) promoting, marketing or recommending to another party any matters addressed herein.