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nullnullIRPT Conference New Orleans, LAApril 2005Sourcing Capital a lenders perspectiveInnovative Financial Solutions Exempt Facility Bonds Port Facility Revenue Bonds Taxable Bonds Industrial Development Bonds Empowerment Zone Bonds Innovative Financial Solutions Exempt Facility Bonds Port Facility Revenue Bonds Taxable Bonds Industrial Development Bonds Empowerment Zone Bonds Private Placement and Variable Rate Demand Bond StructuresnullPrivate Placement Structure Borrower - Port TenantIssuerBorrower Lender Loan AgreementBondPaymentnullIssuer Lender PaymentLoan / Lease AgreementPrivate Placement Structure Borrower - Port AuthoritynullDrawbacks of the a Direct Purchase Early prepayment will typically result in a penalty, which may be significant dependant on when the bonds are prepaid Yield curve for fixed rates Private Placement/Direct PurchaseAdvantages of the a Direct Purchase Low long-term fixed or floating rates Simplified process, standardized documents, low upfront fees, no post closing fees and fewer parties involved Provide pricing methodology prior to fundingDirect Purchase/Private Placement - Roles of PlayersDirect Purchase/Private Placement - Roles of PlayersBorrower – Must complete a qualified tax-exempt project. Issuer – State or local authority that agrees to act as conduit on Borrower’s behalf to gain access to tax-exempt marketplace OR borrows money directly for its own Port project. Purchaser – Makes a Loan through the Issuer, to the Borrower, based on the underlying credit strength and structure of the transaction OR makes a loan directly to the Issuer for its own project. Escrow Agent – A Bank which holds and invest funds, for the benefit of the Borrower or Issuer. Once funds are completely expended, Escrow Agent’s role is eliminated. null VRDB Structure for Port TenantISSUERBORROWERTRUSTEEUNDERWRITERLETTER OF CREDITBONDHOLDERSLoan AgreementTrust IndentureBond PurchaseL/CDebt ServiceBond PurchaseBond Placement AgreementReimbursement AgreementnullCredit provider, securing an obligation with a variable interest rate structure --- i.e. typical bank deal Tax-exempt Bond Proceeds must still be used for a qualified purpose Unlike private placement, a Floater is a long-term financing obligation that has a short interest rate reset and investor put feature (usually 7 days) The put feature allows bondholders to “put” their bonds back to a remarketing agent with a short notice period, usually 7 days LOC provider versus direct purchaser of the tax-exempt obligation – either way lender takes credit risk What are Variable Rate Demand BondsLOC Enhanced VRDB - Roles of PlayersLOC Enhanced VRDB - Roles of PlayersBorrower – Must complete a qualified project for a Tax-exempt Bond, not needed for a taxable deal. Issuer – State or local authority that agrees to act as conduit on Borrower’s behalf to gain access to tax-exempt marketplace Letter of Credit Provider Provides credit enhancement necessary to sell bonds to the tax-exempt Bondholder and takes company credit risk. The LOC covers both default and ongoing liquidity risk (for the 7-day put feature) Placement/Remarketing Agent – Sells bonds on an initial basis and provides ongoing remarketing services for the 7-day put feature of the VRDB Trustee/Paying Agent/Tender Agent – Acts in a fiduciary capacity for bondholders, provides payment services between Issuer, Borrower and Bondholder and acts as agent if the bonds are put back to the Remarketing Agent and must be placed with a new Bondholder Bondholder – Lender via purchase of VRDB’s. The typical Bondholder is a tax-exempt money market fund, institutional investor or high net worth individual. The Bondholder looks solely to the Letter of Credit for repayment. nullDrawbacks of the typical VRDB Long-term interest rate risk (can be a volatile market which does not always follow typical interest rate indicators) Long-term letter of credit risk (price increases, possible downgrade and non-renewal) More complicated and expensive to issue than direct purchase. All-in cost may be high if transaction is redeemed early (higher fees over a short period)LOC Enhanced VRDB – Advantages and DrawbacksAdvantages of the VRDB Very low interest rates – shortest end of the yield curve Extremely flexible repayment structure – bonds can generally be optionally redeemed at any time without penalty Bondholder may negotiate a change in structure with the LOC provider without effecting the entire bond transaction May be converted to a fixed rate at any time via Swap or ConversionnullWhat Can Be Financed?Personal Property – Cranes, fork lifts, rolling stock, construction equipment, modular buildings, etc. Real Property - Distribution Centers, storage facilities, administration buildings, etc.nullReal Estate Terms Up To 20 Years (amortization) Equipment Terms Up To 10 years Standardized And Streamlined Documentation Process - Cheaper And Quicker To Close Than Alternatives Fixed, Floating Rates Low Up Front Fees & No Post Closing Fees Elimination Of Underwriting Agent, Trustee, Rating Agency, Printing Costs Fee simple mortgage/Ground Lease structures GE Lending Parameters – Direct PurchaseSample Tax-exempt TransactionsSample Tax-exempt TransactionsnullSample Taxable Transactions