CDFA // BNY MELLON DE DEVELOPMENT FIN FINANCE WEBCAST SE SERIES - - PowerPoint PPT Presentation
CDFA // BNY MELLON DE DEVELOPMENT FIN FINANCE WEBCAST SE SERIES P3s That Fuel The Economy The Broadcast will Begin at 1:00pm Eastern Submit your questions in advance using the GoToWebinar control panel View previous webcast recordings online
WWW.CDFA.NET / / WWW.BNYMELLON.COM
CDFA // BNY MELLON DE DEVELOPMENT FIN FINANCE WEBCAST SE SERIES P3s That Fuel The Economy
The Broadcast will Begin at 1:00pm Eastern
Submit your questions in advance using the GoToWebinar control panel View previous webcast recordings online at www.cdfa.net
WWW.CDFA.NET / / WWW.BNYMELLON.COM
Are you a CDFA Member?
Members receive exclusive access to thousands of resources in the CDFA Online Resource Database. Create your unique login today at www.cdfa.net
Coordinator, Research and Technical Assistance Council of Development Finance Agencies Columbus, OH
Hello! Welcome to the webcast.
WWW.CDFA.NET / / WWW.BNYMELLON.COM
Legal Disclaimer
CDFA is not herein engaged in rendering legal, accounting, financial or other advisory services, nor does CDFA intend that the material included herein be relied upon to the exclusion of outside counsel or a municipal advisor. This publication, report or presentation is intended to provide accurate and authoritative general information and does not constitute advising on any municipal security or municipal financial product. CDFA is not a registered municipal advisor and does not provide advice, guidance
recommendations on the issuance of municipal securities or municipal financial products. Those seeking to conduct complex financial transactions using the best practices mentioned in this publication, report or presentation are encouraged to seek the advice of a skilled legal, financial and/or registered municipal advisor. Questions concerning this publication, report or presentation should be directed to info@cdfa.net.
WWW.CDFA.NET / / WWW.BNYMELLON.COM
Join the Conversation
Listen through the telephone for best audio quality. Submit your questions to the panelists here.
WWW.CDFA.NET / / WWW.BNYMELLON.COM
CDFA Training Institute
16 courses in development finance designed for all skill levels. Learn more and register today at www.cdfa.net
Jennifer Fr Fredericks, Mod
erator Vice President & Principal of Corporate Trust – Business Development The Bank of New York Mellon John Sem Semeniak Partner McGuireWoods LLP Se Seth Crone Vice President of Client & Business Development The Bank of New York Mellon
P3s That Fuel The Economy
Ed d Ra Ray Chief Financial Officer Natgasoline John Fin Finke President Public Facilities Group
WWW.CDFA.NET / / WWW.BNYMELLON.COM
Are you a CDFA Member?
Members receive exclusive access to thousands of resources in the CDFA Online Resource Database. Create your unique login today at www.cdfa.net
Vice President & Principal of Corporate Trust – Business Development The Bank of New York Mellon Chicago, IL
P3s That Fuel The Economy
WWW.CDFA.NET / / WWW.BNYMELLON.COM
Partner McGuireWoods LLP New York, NY
CDFA Training Institute
16 courses in development finance designed for all skill levels. Learn more and register today at www.cdfa.net
P3s That Fuel The Economy
www.mcguirewoods.com
P3s – Basic Considerations for Tax-exempt Financing of Energy Related Projects
Council of Development Finance Agencies CDFA // BNY Mellon Development Finance Webcast Series: P3s That Fuel The Economy February 18, 2020
DISCLAIMER: NONE OF THIS PRESENTATION CONSTITUTES ADVICE OF ANY KIND; CONSULT YOUR TAX ADVISOR.
McGuireWoods | 2
CONFIDENTIAL
➢ Governmental & Non-governmental Projects ➢ Private Activity Analysis ➢ Management Contract Safe Harbor ➢ Remedial Actions ➢ Qualified Private Activity Bond – Key Requirements The purpose of this presentation is to provide a general reference point and framework only for the topics mentioned herein.
Overview
McGuireWoods | 3
CONFIDENTIAL
Governmental Tax-exempt Projects
➢ Pre-pay transactions:
➢ Bond proceeds are used to purchase electricity or natural gas from generator in advance of delivery ➢ Purchase is made by or for a governmental utility for use in the utility’s service area ➢ Output facilities (e.g., generating, distribution and transmission facilities) - proceeds of bonds are used for capital expenditures for such facilities: ➢ $15 million limitation: generally, not more than $15 million of a bond issue for an output facility may be used for a private business use ➢ Private business use is use directly or indirectly in a trade or business that is carried on by any person other than a governmental
➢ Purchase pursuant to a contract by a non-governmental person of available output of an output facility may be taken into account under the private business tests
McGuireWoods | 4
CONFIDENTIAL
Non-governmental Projects – Tax-exempt Private Activity Bonds
➢ Solid waste: new treasury regulations eliminate “no value” test and allow for energy conversion projects subject to limitations ➢ Limitations: first useful product rule or useful energy ➢ Manufacturing: financed assets in production of tangible personal property ➢ Sewage and water facilities ➢ Local furnishing of electricity or gas: 1997 “in operation” rule is limiting ➢ Local district heating or cooling: limited to pipelines and networks providing hot water, chilled water or steam ➢ Environmental enhancements of hyrdroelectric generation: fish ladders and related fish protective improvements ➢ Qualified 501(c)(3): project must be owned by the 501(c)(3) entity ➢ Other “exempt facilities: include high-speed rail, P3 educational facilities, green building (expired) and highway/surface freight
McGuireWoods | 5
CONFIDENTIAL
➢ IRC § 141(a) provides that the term “private activity bond” means any bond issued as part of an issue (1) that meets the private business use test and private security or payment test, or (2) that meets the private loan financing test. ➢ IRC § 141(b)(1) provides generally that an issue meets the private business use test if more than 10 percent of the proceeds of the issue are to be used for any private business use. ➢ IRC § 141(b)(6) defines “private business use” as use (directly or indirectly) in a trade or business carried on by any person other than a governmental unit. For this purpose, any activity carried on by a person
PAB Analysis
McGuireWoods | 6
CONFIDENTIAL
➢ Treas. Regs. § 1.141-3(a)(1) provides, in part, that the 10 percent private business use test of § 141(b)(1) is met if more than 10 percent of the proceeds of an issue is used in a trade or business of a nongovernmental person. For this purpose, the use of financed property is treated as the direct use of proceeds. ➢ Treas. Regs. § 1.141-3(a)(2) provides that, in determining whether an issue meets the private business use test, it is necessary to look at both indirect and direct use of proceeds. Proceeds are treated as used in the trade or business of a nongovernmental person if a nongovernmental person, as a result of a single transaction or a series of related transactions, uses property acquired with the proceeds of an issue.
PAB Analysis (cont.)
McGuireWoods | 7
CONFIDENTIAL
➢ Treas. Regs. § 1.141-3(b)(1) provides that both actual and beneficial use by a nongovernmental person may be treated as private business use. In most cases, the private business use test is met only if a nongovernmental person has special legal entitlements to use the financed property under an arrangement with the issuer. In general, a nongovernmental person is treated as a private business user as a result
management contract, or an incentive payment contract; or certain other arrangements such as a take or pay or other output-type contract.
PAB Analysis (cont.)
McGuireWoods | 8
CONFIDENTIAL
➢ Management contracts may result in private business use of governmental bond-financed property under § 141(b) or under the modified private business use test for qualified 501(c)(3) bond-financed property. ➢ Rev. Proc. 2017-13:
➢ General effective date – Rev. Proc. 2017-13 applies to any management contract entered into on or after January 17, 2017. ➢ Can apply old safe harbors to contracts entered into before August 18, 2017, and not materially modified or extended on or after August 18, 2017 (other than pursuant to certain renewal options). ➢ Generally permits any type of fixed or variable compensation that is reasonable compensation for the services rendered under the management contract. ➢ Service provider cannot share in the net profits or bear the burden of any net losses from the operation of the managed property.
Management Contract // Rev. Proc. 2017-13
McGuireWoods | 9
CONFIDENTIAL
➢ Applies to management contracts involving managed property financed with the proceeds of an issue of tax-exempt governmental or qualified 501(c)(3) bonds.
➢ Management contract means a management, service, or incentive payment contract between a qualified user and a service provider under which the service provider provides services for a managed property. A management contract does not include a contract or portion of a contract for the provision of services before a managed property is placed in service (for example, pre-operating services for construction design or construction management). ➢ Managed property means the portion of a project (as defined in Treas.
services.
McGuireWoods | 10
CONFIDENTIAL
➢ Project means one or more facilities or capital projects, including land, buildings, equipment or other property, financed in whole or in part with the proceeds of an issue. ➢ Qualified user means, for projects financed with governmental bonds, any governmental person or, for projects financed with qualified 501(c)(3) bonds, any governmental person or 501(c)(3) organization with respect to its activities which do not constitute an unrelated trade
➢ Service provider means any person other than a qualified user that provides services to, or for the benefit of, a qualified user under a management contract.
McGuireWoods | 11
CONFIDENTIAL
➢ Determination of compensation cannot take into account both the revenues and expenses of the managed property for any fiscal period. ➢ Limited deferrals of compensation payments not deemed to a bearing of net losses; deferral can last no more than five years after the original due date. ➢ Incentive compensation allowed if the eligibility for the compensation is determined by meeting one or more standards that measure quality of services, performance, or productivity. ➢ The term of the management contract, including all renewal options, can be up to the lesser of 30 years or 80 percent of the weighted average reasonably expected economic life of the managed property. ➢ Land gets a 30-year life if at least 25 percent of the proceeds of the issue that financed the managed property were used to acquire the land. Otherwise the land is disregarded.
McGuireWoods | 12
CONFIDENTIAL
➢ Governmental entity must exercise significant control over managed property – including approving the annual budget and rates charged, capital expenditures and property dispositions. ➢ Governmental entity must bear risk of loss upon damage or destruction
➢ Service provider may take no inconsistent tax positions (for example, no depreciation deductions). ➢ No circumstances substantially limiting the governmental entity's exercise of contract rights.
McGuireWoods | 13
CONFIDENTIAL
➢ Provides remedial action workable for long-term leases of bond- financed property to private entities; similar to existing “alternative use
➢ May allow localities to transfer tax-advantaged financed governmental facilities into private hands and onto the tax rolls and avoid the result where a sale or lease of bond-financed property to a private entity constitutes private business use. ➢ Lease has to be an "eligible lease” – cash lease payments only with a term generally of the lesser of 20 years or the remaining term of the bonds. ➢ The present value of the lease payments (determined by using the bond yield as the discount rate) is applied to a qualified alternative use within two years of the effective date of the lease.
McGuireWoods | 14
CONFIDENTIAL
➢ To be a qualified PAB, IRC § 141(e) provides that the bond must meet:
➢ Depending on the type of PAB bond, the applicable requirements of IRC § 142, 143, 144, or 145 ➢ Volume cap requirements of IRC § 146, and ➢ Public approval requirements of IRC § 147
➢ Volume Cap
➢ Generally applicable to PABs except 501c3, certain mortgage bonds, airports, docks and wharves ➢ Disaster bonds have their own cap rules
➢ Substantial User
➢ Prevents the beneficiary of bond from holding the bond ➢ A substantial user is a nonexempt person
➢ Maturity – average maturity of the bonds cannot exceed 120% of the average reasonably expected economic life of the facilities being financed
General Rules for PABs - Limitations
McGuireWoods | 15
CONFIDENTIAL
➢ Land acquisition – less than 25% of the net proceeds may be used for land acquisition ➢ First time use – if property is acquired with proceeds, the first use of the property must be in connection with the acquisition ➢ Prohibited facilities – no portion of the bond proceeds may be used for airports, skyboxes, health club facilities, facilities primarily used for gambling, stores the principal business of which is the sale of alcoholic beverages for consumption off premises ➢ Public hearing and approval – must have host and issuer jurisdiction approval following a public hearing ➢ 95% and 2% requirements – at least 85% of the net proceeds are used for the qualified purpose, and no more than 2% for costs of issuance
General Rules for PABs - Limitations (cont.)
McGuireWoods | 16
CONFIDENTIAL
Municipal PAB Financing Structure
Offtaker
MWh $/MWh
LT PPA
Borrower Muni Owner
Fees - O&M Payments/Revenue Share/Lease Rentals, Etc. Site Lease/Operating Contract/Concession Agreement
For discussion purposes only; consult your financial and tax advisor
Product Payment ($)
Financing Partner
Loans/Bonds/ Equity
Customers
Fees & Payments Fees & Payments Repayment/ Distributions
McGuireWoods | 17
CONFIDENTIAL
Questions or Comments?
www.mcguirewoods.com
WWW.CDFA.NET / / WWW.BNYMELLON.COM
Vice President of Client & Business Development The Bank of New York Mellon Houston, TX
CDFA Training Institute
16 courses in development finance designed for all skill levels. Learn more and register today at www.cdfa.net
P3s That Fuel The Economy
WWW.CDFA.NET / / WWW.BNYMELLON.COM
Chief Financial Officer Natgasoline Beaumont, TX
CDFA Training Institute
16 courses in development finance designed for all skill levels. Learn more and register today at www.cdfa.net
P3s That Fuel The Economy
Public Private Partnership Financing
February 18, 2020
2
Natgasoline Structure and Highlights
Consolidated Energy Limited (Switzerland) OCI N.V. (The Netherlands) G2X Energy (Beaumont), LLC (Delaware) OCI Chemicals (The Netherlands)
50%
Organizational Structure
50%
▪ Methanol – Global demand of 90 million metric tons with roughly half attributed to GDP-linked consumer and industrial products, one third from fuel/energy related uses and the remainder from methanol to olefins (“MTO”) / methanol to propylene (“MTP”) ▪ Asset – largest (~$2bn) world scale methanol production facility in the U.S. located in Beaumont, TX ▪ Capacity – 1.75mm metric tons/year (#1 in U.S.) ▪ Technology – Proven plant design utilizing Lurgi MegaMethanol technology ▪ Location – Strategically located in the Texas gulf coast for access to both US distribution and port shipping channels for global distribution plus access to interstate/intra state natural gas pipelines ▪ Operations Leadership – Both CEL and OCI are global leaders in methanol, natural gas monetization and related petrochemical production ▪ Production – Commenced production in Q3 2018 Natgasoline Highlights
Natgasoline Facility, Beaumont, TX Located on Neches River with direct access to Gulf of Mexico
Natgasoline LLC (Delaware)
3
Natgasoline Project Risks Success
Shareholders Feedstock Construction Offtake Operations Financing
High Barriers to Entry Cyclical Industry Feedstock Price Risk
4
De-risking Natgasoline Project
Natgasoline Project Progression 2013 to 2018
Apr 2016:
Feb 2013: Environmental approval of Natgasoline plant at state and federal level
2018 2018
Jun 2018: First Methanol production
2013 2013
Mar 2014: Groundbreaking ceremony 2014 to 2018: Secure contracts to reduce operations risk (e.g., feedstock, natural gas prices, offtake agreements) Aug 2018: Successful production, performance tests, and provisional acceptance Nov 2018: Successful Refinancing of Tax-Exempt Bonds and Term Loan B issuance
Strategic/Financing Operation/Construction
Operations Risk Construction Risk Industry Risk Shareholder Risk
Ed Ray, CPA Chief Financial Officer Natgasoline LLC 2366 Sulphur Plant Road Beaumont, TX 77705 Bus: (409) 344-4900 Mobile: (832) 570-4776 E-mail: ed.ray@natgasoline.com
5
Contact Information
Seth Crone, CPA Senior Relationship Manager BNY Mellon 601 Travis, Floor 16 Houston, TX 77002 Bus: (713) 483-6568 Mobile: (713) 410-8259 E-mail: seth.crone@bnymellon.com
WWW.CDFA.NET / / WWW.BNYMELLON.COM
President Public Facilities Group Seattle, WA
CDFA Training Institute
16 courses in development finance designed for all skill levels. Learn more and register today at www.cdfa.net
P3s That Fuel The Economy
Site 1:
County Office Building Above Parking and Replacement Parking Structure
Site 2:
Private Market Rate Housing (Currently being re-examined for other potential uses)
Site 3:
Senior Affordable Housing and Community Center
Site 1:
Vermont Corridor Administrative Office Building County Office Building Above Parking and Replacement Parking Structure (seen to the right)
and AA- from Fitch
LA County Trammell Crow Public Facilities Group Gensler Hathaway Dinwiddie
Development Team
Lease
LA County Trammell Crow Public Facilities Group Gensler Hathaway Dinwiddie
Development Team LACF
Sub Contractors Design and Predevelopment Construction
LACF
GMP
(Generally at Completion of DDs)
Lease Entitlements
Lease Investors Bond Underwriter Trustee Public Agency Lease Payments Public Facilities Group Debt Service Operating Costs Repair and Replacement Reserve + + Operator and Maintainer Special Purpose Entity
Ownership LA County LA County Administrative Office Building
Why LA County Selected 63-20 Progressive Design- Build Approach
schedule by 11 months - resulting in a project savings of $30 million.
valued at an addition $30 million by the County
costly than the County’s own lease revenue bond financing. S&P-AA and Fitch - AA- 3.73 TIC - 30 YR Fixed
and control for LA County compared to other P3 Approaches
Transfer in both Construction and Operations
WWW.CDFA.NET / / WWW.BNYMELLON.COM
Audience Questions
Submit t you
esti tions to
the e panel el now by usin ing th the e GoT
l panel. el.
WWW.CDFA.NET / / WWW.BNYMELLON.COM
Register Online at www.cdfa.net
Upcoming Events at CDFA
CDF CDFA Br Brown wnfie ield lds Webin ebinar Ser Serie ies: Ca Cataly lytic ic Br Brown wnfie ield ld Fi Fina nancin ing So Solut utio ions Tuesday, February 25, 2020 1:00 PM Eastern Intro Bo Bond nd Fi Finance WebC ebCourse February 26-27, 2020 12:00 – 5:00PM Eastern Daily
WWW.CDFA.NET / / WWW.BNYMELLON.COM
Join Us for Future Webcasts CDFA // BNY MELLON DE DEVELOPMENT FIN FINANCE WEBCAST SE SERIES To TIF or Not to TIF, is TIF the Right Tool For Your Project? Tuesday, March 17 @ 1:00 pm Eastern
Ce Celeb lebratin ing over r a decade of f th the CD CDFA // // BN BNY Mell llon Develo lopment Fin inance Webcast Se Serie ries!
WWW.CDFA.NET / / WWW.BNYMELLON.COM
Jennifer Fredericks
Vice President & Principal 312 827-3218 jennifer.fredericks@bnymellon.com
The material contained herein is for informational purposes only. The content of this is not intended to provide authoritative financial, legal, regulatory or other professional
legal liability and responsibility to persons or entities that use this report based on their reliance of the information in such report. The presentation of this material neither constitutes an offer to sell nor a solicitation of an offer to buy any securities described herein.
Contact Us
Allison Rowland
Coordinator, Research & Technical Assistance 614-705-1308 arowland@cdfa.net