Medium Term Equipment Financing Solutions

Medium Term Equipment Financing Solutions

Presented to: Florida School Finance Officers Association

Chuck Maguire, SVP Equipment Finance Specialist Banc of America Public Capital Corp

Government Finance

Geoff Culm, SVP Equipment Finance Specialist Banc of America Public Capital Corp

Energy Services

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About Banc of America Public Capital Corp

Business Model

Banc of America Public Capital Corp (BAPCC), a wholly-owned subsidiary of Bank of America N.A., serves the needs of clients in the energy, healthcare, institutions and government markets, providing integrated resources and business capabilities under one organization. BAPCC, which includes Energy Services, Renewable Energy Finance, Healthcare & Institutions Finance,

Government Finance, and Tax Credits, provides both taxable and tax-exempt financing solutions to states, municipalities and other tax-exempt institutions, as well as commercial and industrial companies. The team works closely with clients to develop solutions ranging from standard financings to highly structured transactions, each tailored to a client's unique needs and objectives.

Line of Business Client Focus Market Coverage Deal Size

Healthcare & Institutions Finance

Multi-hospital systems, stand-alone hospitals, large physician groups, multi-specialty physicians groups, est. outpatient centers and hospital joint ventures (DIC’s, ASC’s, cancer centers, laboratories) and for-profit entities; Institutions: not-for-profit cultural, religious and civic organizations, private and public colleges /universities, private primary/secondary schools

Geographic focus $1MM-$100MM

Government Finance Governmental agencies and sub-agencies including states, cities, counties, K-12 school districts, special districts (ports, transportation, water, sewer, power and health), public colleges and universities

Geographic focus $1MM-$100MM

Energy Services State and local governments, federal government agencies, public education, public housing authorities, institutions, healthcare, ESCOs (Energy Services Companies), waste water treatment facilities, public utilities, cooperative utilities, commercial and industrial

Geographic focus $2MM-$100MM

Renewable Energy Finance Utilities, Independent Power Producers, project developers, equipment

manufacturers, EPC contractors, municipalities, private equity and U.S. affiliates of foreign entities installing wind and solar projects

Industry focus $20MM-$150MM

Tax Credits Source of business (Originate): tax credit aggregators/syndicators, financial institutions (looking to sell) and developers; Investors (Distribute): banks, insurers, corporate and industrial entities

Transaction/ Geographic focus

$25MM-$100MM+

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Focus Areas for Discussion

 Introduction

 Analysis of current situation and needs for School Districts  Tax-exempt leases and master lease

─ Recommended general medium-term capital solutions  Focus on 3 areas of capital needs:

─ Transportation ─ Digital Technology ─ Energy Solutions

 Overview of Banc of America Public Capital Corp and Bank of America ─ A powerful platform for your success

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Typical Priorities of School Districts

 Continued successful implementation of goals and objectives

─ Effective evaluation of ongoing equipment and fleet needs and requirements ─ Promote excellence in staff achievement and development

─ Maintain and upgrade vehicles and other equipment as well as facilities ─ Lower equipment life-cycle operating costs

 Prepare for growth-related pressures ─ Respond/address growth

─ New facilities/refurbish and modernize existing facilities ─ Recruit qualified staff (Diesel Mechanics)

─ Increased need for equipment, facilities, and related assets  Continue sound financial policies

─ Successful management of operations and budget ─ Conserve cash

─ Manage energy cost

─ Manage debt; conserve bonding capacity and capital ─ Leverage fund balances and revenue sources

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Government Strategic Capital Formation

Commercial Banking Short-term capital Operational needs Medium-term capital Investment opportunities Capital Markets Long-term capital

Long range strategy

Typical Products

 Draw notes/lines of credit  BANs, TANs, RANs

 Liquidity facilities

 Private placement issuances – taxable and tax-exempt  Leases, loans and bonds

 Public Market Issuances, Bonds, Mortgages, Real Estate

Strategic Objective

 Bridge time gaps between revenue collections and expense

disbursements

 Quick access to a cost effective source of capital

 Strategic capital formation to support long range plans for growth and tax revenue positions

Product Objective

 Manage maintenance & operational cash flows

 Short-term/timing support for capital expenditures

 Support of remarketing of capital markets facilities

 Funding for new investments  Refinancing existing debt

 Equipment Financing: Match fund medium-term assets

 Funding for new investments  Refinancing existing debt  Match fund long-term assets /

investments (infrastructure) with long-term capital

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Product Overview

Government Finance Product Suite

Structure

Products include taxable and tax-exempt appropriation leases (single funding or master lease line), lease purchase agreements, other assets secured debt financing such as loans or notes and operating leases.

Tenor

3-15 years

Credit Rating of

Issuer _{A or better}

Typical Assets

Essential use assets such as transportation (incl. buses, rail, port equipment), technology, furniture and fixtures, energy equipment, waste/water/publics safety/public health/public facility, related equipment and select real estate

Typical User

Governmental agencies and sub-agencies including states, cities, counties, K-12 school districts, special districts (ports, transportation, water, sewer, power and health), as well as public colleges and

Master Lease Line Concept Combine Purchases to

Save Time and Money

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Assets A to Z

BAPCC Government Finance

IT

 Computer mainframe

 Data & network security systems  e-911 systems

 e-Learning (e-readers and tablet style computers)

 Infrastructure related to mobility and distance education (remote learning)

 Laptops, computers

 Lecture technology (audio, video, projectors)  Software

Transportation  Ambulances  Buses  Fire trucks

 Fixed wing aircraft  Garbage trucks

 Golf carts, bulldozer, forklift  Helicopters

 Metro buses  Panel vans  Police cars  School buses

Energy Equipment & Deferred Maintenance  HVAC, Co-Generation, energy efficiency  Renewable energy projects

 Energy Performance Contracting Utilities

 Sewer & Water Projects xxxx xxxxx FF&E  Astroturf  Bleachers  Bridges  Cafeteria equipment  Carpet  Containers  Copiers  Elevators  Fire hydrants  Parking garage  Parking meters  Office furniture  Police and security

equipment  Phone systems  Refuse bins  Scoreboards/signage  Sewers  Sprinkler systems  Stereo/sound systems  Storage racks  Street lights  Swimming pools  Televisions  Text books  Toll booths  Traffic lights  Water coolers  Zamboni machine xxxxx xxxxx xxxx x x xxxx xxxx xxxx

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What is a Municipal Lease?

 Installment sales contract which allows a municipal borrower to acquire essential  Use equipment today and spread the cost of the equipment over a three, five or

sometimes even a seven-year term

 Allows for acquisition of essential use equipment  Three to 15-year terms

 Allows for a school district to have non-appropriation of funds protection  Lender exempt from federal taxes on interest

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Benefits of a Municipal Lease

 To meet on-going capital requirements

 Match useful life of assets to financing term  Manage liquidity cash positions

 Complement to Bond issues  Simplicity and flexibility

─ No voter approval needed (vs. bond issues)

─ Timeline to finalize lease much shorter (than bonds)  Cost

─ Less than most bond issues

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Non-Appropriation

 Requires a school district to include following year lease payments in annual budget  School district can walk away from payments if funds are not appropriated

 Borrower mitigates:

─ Essentiality of equipment ─ Legal contracts/documents  Be careful – Don’t play with fire!

─ Non-appropriation has drastic consequences

─ Impact future ability to borrow on non-appropriation contracts • Fool me once shame on me……….

─ COP’s as well as leases

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Benefits of a Master Lease Line

 Centralized purchasing through one capital source  Fastest access to market

 All departments have access to the line – saves time and money  Flexibility to accommodate various terms

 Does not require voter approval

 To meet on-going, medium-term capital requirements  Match useful life of assets to the financing term

 Complement to public capital at fraction of the cost  Efficient documentation process

 Ability to lock-in rates for long acquisition or construction periods  Prepayment flexibility

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Comparison of Lease to Bond

 Lower cost of issuance

 Shorter documentation timeline; more flexible document

 May be on/off balance sheet (501.c.3)  No public disclosure requirements

 Generally secured by asset or by revenue pledge  Typically shorter-tenor (3-10 years)

 Size minimum $5MM

 Appropriations lease generally does not contain: ─ Covenants

─ Liquidity instrument ─ Bond rating

 Parity of debt will be affected by status of current debt covenants, local statutes

 May be held as investment or syndicated as private placement

 Higher issuance cost

 Timeline to document is significant; less flexible documents

 On balance sheet

 Public disclosure required

 Typically not secured by assets; frequently utilize revenue pledge

 Tenors range from 3-30 years  Size minimum $20MM

 Contains

─ Covenants ─ LC or insurance ─ Bond rating

 Parity of debt will be affected by status of current bond covenants, local statutes  Typically syndicated into the public bond

market

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Funding Options

Interest Rate Options:  Lock-in rate at funding

 Use of index until funding for life of master lease  Components

─ Base term or Average life ─ Index (Average life swaps) ─ Spread

Typical interest rate index:

 Interest rate = Average life swaps x 65%, plus predetermined spread  Avoid: Proprietary indexes (indexes not accessible to public)

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Escrow Funding

 One funding up front

 Take away interest rate risk

 Easy vendor payment or self-reimbursement process  Interest accrued in account benefits school district

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Lease Documentation Package

 Master Lease Agreement

 Acquisition Fund and Account Control Agreement (aka “Escrow” agreement)  Lease Schedule

 Acceptance Certificate

 Arbitrage and Tax Certificate  Essential Use Certificate

 IRS Form 8038  Opinion (Tax)

 Authority Opinion

 Resolution/Board Minutes

 Reimbursement Resolution or Declaration of Intent (for lessee reimbursements)  Incumbency Certificate

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Documentation Issues

• Timeline – from Lessor selection to funding – Credit approval

– Lessee document review – Negotiations

– Internal (council) approvals – Signing

– Funding (pre-close very helpful)

• Funding or disbursement considerations

– Customer to provide originals of invoices (including signed Vendor Transaction Fee Form, if applicable), proof of payment, and evidence of insurance

– Average turnaround time is 48 hours

• Escrow account (documents needed to release funds) – Deutsche Bank as escrow agent

– Funds initially disbursed into escrow account

– At expiration of escrow period, excess funds applied to rents or principal repayment • Vehicles, titled units, etc.

– Lessor as lien holder

– Copies of completed title applications should be submitted to Lessor at time of disbursement request

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Transportation Needs

 Buses

 Automobiles

 Maintenance vehicles  Average bus costs:

─ Type A1: $51,000

─ Type A2: $67,000

─ Type C: $83,000

─ Type D: $105,000

 Issues:

─ Average age of current fleet

─ Skyrocketing maintenance costs (Diesel mechanics) ─ How to handle interest rate risk (240 day delivery)  Solution: Master lease!

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Florida’s Digital Learning Initiatives

 The state of Florida has groups working on several digital initiatives ─ Florida 2.0 Digital Learning Group

─ Florida Digital Instructional Materials Work Group  Reforms being implemented by 2014/15 to ensure State

remains leader in digital learning

 Goal is to have equitable access to a device every student can use to access high-quality digital content anywhere  One to One device goal

─ Focus on digital learning

─ Mobile learning anytime anywhere ─ One to One access devices

─ Digital assessment

─ Student response systems ─ Digital Content

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Florida’s Digital Learning Initiatives - Funding

Currently, to achieve a One to One goal, Florida schools would need 1.7 million additional mobile computers.

 Challenge is funding costs associated with Digital Learning  Aside from student devices, other costs include:

─ Virtual workstations ─ Network infrastructure ─ Access points ─ Controllers ─ Switches ─ Routers

─ Facility upgrades to HVAC systems to handle heat, power ─ Provisions for battery powered devices:

charging stations, electrical outlets ─ BYOD opens up it’s own Pandora's box

Achieving Sustainability and Economic Objectives

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Energy Performance Contracting

Fundamentals

 Contracting method by which an entity procures energy savings and deferred maintenance facility improvements typically under a Guaranteed Savings Energy Performance Contract or similar agreement (an EPC) from an Energy Services Company (ESCO)

 Utility or cost avoidance savings generated from the project are typically guaranteed by the ESCO  Savings may be measured or stipulated (agreed

to between the customer and the ESCO upfront)  Savings are generally used to cover the financing

of the improvements

 Most states have passed performance contracting statutes to facilitate but also standardize EPC terms and requirements for public entities within the state

 Contract tenors and EPC requirements vary by state

Common Energy Conservation Measures

 Energy efficient indoor lighting

 Building control systems and occupancy sensors

 Boilers, chillers, HVAC and mechanical systems

 Central plants

 Outdoor lighting, parking lights, street lights  LED traffic signals

 Water meters, electric meters and automated meter reading systems

 Water flow conservation fixtures  Energy recovery systems

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Financing Solutions

Traditional Products

 Cash

 Tax-exempt lease purchase agreement (TELP) – municipal and 501(c)(3)  Commercial rated debt (LIS and loans)

 Tax/operating leases

 Privately placed General Obligation Bonds or Revenue Bonds  Purchase of Receivables

Non-Tax and Tax Structured Financing

 Energy/utility service agreements

Tax Advantaged Structures

 Tax Credit Obligations provide financing incentives which reduce interest costs (may be issued as bonds, leases or loans)

- Qualified Zone Academy Obligations (QZABs)

- New Clean Renewable Energy Obligations (New CREBs) - Qualified Energy Conservation Obligations (QECBs) - Qualified School Construction Obligations (QSCBs)  Power Purchase Agreement

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Energy Performance Contracting Diagram

Financing Example Using a Lease/Purchase Agreement

The issuer’s obligations under the Lease/Purchase Agreement are independent of the vendor’s obligations under the Energy Performance Contracting Agreement.

School District ESCO/ Vendor Tax-Exempt/Taxable Capital Lease/ Purchase Agreement Energy Performance/ Guaranteed Savings Contract Lender

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Market Dynamics

 Demand for energy independence  Pursuing energy efficiencies for local

economic development

 Societal support for renewable/clean energy

 Need to reduce demand on the grid  Address deferred maintenance

Financial Incentives

 Financing subsidies  Grant programs  Solar tax credits  Renewable energy credits  Commercial buildings tax deduction Legislative Support  State programs

 Energy Policy Act of 2005

 The American Recovery and Reinvestment Act of 2009

Deterrents  Fiscal budgets

 Natural / energy gas prices  Political priorities

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Benefits of Energy Efficiency and Renewable Energy

assets than generally can “pay for themselves”

 Cashflow deferred maintenance items by leveraging faster payback initiatives

 Reduce utility expenses

 Improve budgeting/forecasting  Federal tax incentives

- Investment Tax Credits/Production Tax Credits - Cash grant in lieu of tax credits (stimulus)  Utility incentives

- Compliance with renewable portfolio standards  Environmental attributes

- Renewable energy credits - Carbon offset

- Achieve Issuer’s Sustainability Goals  Other benefits

- Increased property value - Green community leadership

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Qualified Energy Conservation Obligations (QECBs)¹

 Capital expenditures for:

- Reducing energy use in public buildings by at least 20% - Implementing green community programs

- Rural development involving production of electricity from renewable energy resources and research facility expenditures for certain technologies

- New CREBs projects

 Allocated to the States in proportion to US population , with sub-allocations to large local governments (LLGs) with a population > 100,000, and the reminder allocated at the discretion of the State

 No expiration date for allocations (will this change?)  Sub-allocations may be waived by LLG

 No more than 30% of the allocation may be used for non-governmental purposes  Carry over of unused credits

 2% costs of issuance limitations  Davis-Bacon Applies

 Only 70% of the posted tax credit may be utilized

 Direct Pay Option Permitted via Hiring Incentives to Restore Employment Act of 2010 – “Jobs Act”

1_{May be issued as bonds, leases or loans.}

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Qualified Zone Academy Obligations (QZABs)¹

 Qualified school renovation (including energy improvements), related equipment, school personnel training and course material development

 Allocated among the States on the basis of their respective populations below the poverty line, sub-allocated by the appropriate State education agencies to qualified zone academies within the State

 New $400 MN allocations for 2011, 2012, and 2013  100% of the posted tax credit may be utilized

 Treasury sets maximum permitted maturity monthly  10% private contribution required

 Direct Pay Option Permitted via Hiring Incentives to Restore Employment Act of 2010 – “Jobs Act” HOWEVER DIRECT PAY OPTION RESCINDED FOR $400 MN 2011 QZABs

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Government Finance

 BAPCC clients have access to the full range of financial products delivered by Bank of America Merrill Lynch including short, medium and long term debt financing, equipment financing,

treasury management and other banking solutions

 Local expertise and decision making authority with access to Bank of America Merrill Lynch resources

 Ability to structure, execute and support large and difficult transactions

- Expertise in a wide selection of taxable and tax-exempt asset secured financing solutions - Expertise in a wide selection of asset types

- Solutions for small, medium and large clients

 Our strategy combines industry leading structuring capabilities with efficient interest costs  Bank of America Corporation’s commitment to the communities in which we serve

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Government Finance Overview

Business Model

As part of Banc of America Public Capital Corp (BAPCC), a wholly-owned subsidiary of Bank of America N.A., Government Finance structures, invests in and distributes tax-exempt and taxable asset finance transactions to complement the medium-term and long term financial strategies of government entities. The group is one of the government sector’s largest providers of asset financing solutions. Products include taxable and tax-exempt appropriation leases (single funding or master lease line), lease purchase agreements, other assets secured debt financing such as loans or notes and operating leases.

Target Markets/Clients

 Governmental agencies and sub-agencies including states, cities, counties, K-12 school districts, special districts (ports, transportation, water, sewer, power and health)

 Public colleges and universities

Locations  Chicago, IL  New York, NY  Phoenix, AZ  Richmond, VA Client Focus Governmental agencies and sub-agencies, public colleges and universities

Market Coverage

Geographic Focus

Deal Size

$1 million to $100 million

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Tel: 646.855.2676 • Fax: 804.266.5553 [email protected] Banc of America Public Capital Corp One Bryant Park, New York, NY 10036 Courtney Guzman

Senior Transaction Manager Banc of America Public Capital Corp Energy Services

Tel: 401.278.7340 • Fax: 804.262.9172 [email protected] Banc of America Public Capital Corp 1 Financial Plaza, Providence, RI 02903 Alex Ottiano

Senior Transaction Manager Banc of America Public Capital Corp Government Finance

Tel: 312.828.5319 • Fax: 312.453.3981 [email protected] Banc of America Public Capital Corp 135 South LaSalle Street, 10th Floor, Chicago, IL 60603 Geoff Culm

Senior Vice President

Banc of America Public Capital Corp Energy Services

Contacts at Banc of America Public Capital Corp

Tel: 804.788.3345 • Fax: 804.262.8344 [email protected] Banc of America Public Capital Corp 1111 E Main Street, Richmond, VA 23219-3500 Chuck Maguire

Senior Vice President

Banc of America Public Capital Corp Government Finance

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