An overview of the tax-exempt financing products offered by MassDevelopment, presented by Benny Wong, MassDevelopment. Part of Current Topics in Tax-Exempt Finance 10/29/2010

1. Current Topics in Tax-Exempt Finance
Tax-Exempt Products Overview: Just the Facts

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MassDevelopment
• Quasi-public finance and development authority for
Massachusetts
• Serving nonprofits, businesses, and municipalities
• Primary tools for nonprofits:
• Loans, grants and guarantees
• New Market Tax Credits
• Tax-exempt bonds

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Who Can Borrow Tax-Exempt?
• Governmental entities: states, cities, towns,
school districts, authorities for water, highway
public transportation, etc.
Nonprofits are not governmental entities
…enter the conduit issuer

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What is a Conduit Issuer?
MassDevelopment’s Role
• A conduit is a governmental entity which issues tax-
exempt bonds and then lends the proceeds to a
nonprofit organization
• Most conduits such as MassDevelopment are:
– “Instrumentalities of the state” with the right to issue debt on
a tax-exempt basis and loan proceeds to nonprofits
– Truly “conduit” entities – no legal obligation to repay debt
– Educational resource to borrowers

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Who can borrow?
• MassDevelopment can issue tax-exempt debt
on behalf of the following nonprofits:
– Hospitals, health centers, nursing homes, CCRCs,
HMOs
– Higher education
– Cultural institutions
– Research institutions
– Human service providers
– Charter schools
– Private/independent schools

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Finance Programs
• Tax-exempt Bonds
– Fixed or variable rate
– Public offering or direct placement
• Cultural Facilities Fund
• Commercial Paper and Pool Loan Programs
• Direct Loans and Guarantees
– Community Service 501(c)3 Loan Fund
– Green Loan Program
• Equipment leases
• New Markets Tax Credits

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What can be financed?
• Finance new capital project
• Reimburse for prior capital expenditures
• Finance routine capital costs
• Refund existing debt
– To reduce debt service
– To gain covenant relief

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Bank Direct Purchase
• 60+ banks buy MassDevelopment tax-exempt
bonds as direct purchases
• Used in lieu of making taxable loans
• Fixed and floating rates
• Bank does credit underwriting and sets terms
• Lower up–front costs makes financings as
small as $1,000,000 feasible

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Bond Financing Structure
• MassDevelopment acts as a “conduit”, capitalizing
loans with proceeds from bond purchases
• Loans are pledged to repay bonds
• The bank underwrites, sets terms and manages the
relationship the same as for a loan
Bond Purchaser
(Bank)
BorrowerMassDevelopment
MDFA Issues bonds Borrower repays loan

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Enhanced Bank Purchasing
• Banks can deduct interest expense associated with tax-
exempt bonds
• Only for bonds issued in 2009 and 2010
• Up to 2% of bank assets
• only non-bank corporations had this benefit previously
• MA banks may still prefer “separate entity” securities
corporations
• Expanded eligibility for “Bank Qualified” bond status
• Not subject to disallowance of interest expense
• Issuer limit raised to $30,000,000
• For 501(c)3 nonprofits, limit applies to borrower, not
conduit issuer

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Fixed Rate Bonds
• Lock in interest rate until maturity – borrower pays
interest and principal according to predetermined
amortization schedule, usually 20 to 30 years
• For public sale, an “investment grade” credit rating
will provide best price, i.e. lowest interest cost
– Underwriter determines interest rates based on market
conditions and investor demand
• For direct placement, fixed rate is negotiated
between investor and borrower
– Local banks recently active in this market

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Variable Rate Bonds
• Interest rate adjusted periodically (daily, weekly,
monthly, yearly, etc.)
• Borrower pays principal according to pre-determined
amortization schedule
• Principal may be prepaid at any time with 30-day
notice to investors; bonds may be converted to fixed
rate or other variable rate mode
• Credit enhancement from a highly rated bank will
offer best market access for public issue
• Swaps – Synthetic fixed rate

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The Financing Team
• Agency (MassDevelopment)
– Issues the bonds and loans the proceeds to the Borrower
• Borrower
– Eligible nonprofit institution
• Investment Banker
– Helps to structure the transaction and is responsible for selling/underwriting
the bonds
• Bond Counsel
– Assures that the bonds are a binding obligation of an institution and are tax-
exempt; prepares the various agreements and financing documents
• Agency’s Counsel (often the same as the Bond Counsel)
– Assures compliance with statutory requirements
• Financial Advisor to Institution
– Institutions may choose to engage a financial advisor

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The Financing Team (cont’d)
• Underwriter’s Counsel
– Provides legal advice to the Investment Banker as to the issuance and
structure of the bonds and full disclosure of risks
• Borrower’s Counsel
– Assists the Institution in preparing full disclosure (“Appendix A”) and in the
review of financing documents
• Trustee
– Represents and protects the interests of bondholders
• Trustee’s Counsel
– Reviews financing documents to assure the trustee’s ability to perform its
functions
(In a direct placement, the Underwriter & Underwriter’s Counsel are replaced
by the Purchaser & Purchaser’s Counsel)

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Cultural Facilities Fund
• Since 2007, $37MM
investment in 224 capital
projects for nonprofit
institutions that attract
visitors to and create jobs
in Mass.
• Run in partnership with
Mass. Cultural Council
EcoTarium in Worcester

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Charter School Loan Guarantee Fund
• Loan guarantees for charter schools in Massachusetts
• Funds may be used for acquiring, constructing or renovating
both owned and leased charter schools
• For facilities to be owned
– Guarantee can cover up to the lesser of 50% of the first mortgage loan
or $3MM
– Up to 100% loan to value
• For facilities to be leased
– Guarantee can cover up to the lesser of $1MM or 90% of the cost of the
improvements
• Up-front Annual Fee

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TechDollars
• 501(c)(3) nonprofit organizations with annual revenues
$5MM or less
• Funds may be used for 100% of the cost of purchases
of new or used telecommunications and information
technology equipment and related installation costs
• Loans of $25,000-$250,000
• Flexible financing terms and competitive interest rates

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Community Service 501(c)3 Loan Fund
• 501(c)(3) nonprofit social, youth or family service
provider with annual operating budget of less than
$5MM
• Funds may be used for owned or leased facilities to
repair, renovate, construct or acquire real property
• Loans of $100,000-$500,000
• Flexible financing terms and competitive interest rates

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New Markets Tax Credits
• Tax credit subsidizes private investments in low-
income census tracts
• Credits can create equity in real estate projects and
can combine with tax-exempt bonds
• Annual competition by U.S. Department of Treasury
• ARRA created additional $3 billion capacity
• Total $5 billion awarded in October 2009
• MassDevelopment is an allocator of NMTC and
received $55MM for use in MA in October 2009

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Commercial Paper & Pool Loans
• MassDevelopment issues bonds for multiple borrowers, instead of a
single borrower
• Security for the bonds is a bank letter of credit negotiated by
MassDevelopment
– Currently active programs have credit enhancement from Bank of America,
TD Bank, Citizens Bank, JPMorgan/Chase, AIB
• Loans are made from the proceeds of these bonds
• Transaction costs are shared among borrowers
• Loan size is typically $3-$10MM
• Variable interest rate on loans
• Recycling
• Access to loans depends on
– Borrower’s creditworthiness as determined by the credit provider (letter of
credit bank)
– Availability of funds

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Commercial Paper & Pool Loan Advantages
• Low up-front costs – Economies of scale achieved
through pooling spreads fixed costs of issuance
among several borrowers
• Flexibility – Amortization is customized to match
useful life of assets financed
• Ease of Borrowing – Standardized legal documents
facilitate process
• Quick Turn-Around Time – Loans can be closed in as
little as 6-8 weeks
• Great financing mechanism for smaller amounts
(generally $3-10MM)

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Value Lease Program
• Tax-exempt financing for equipment and related renovations or
energy conservation projects
• Similar to installment loan: fixed rate, fixed payments
• Security generally limited to first lien on equipment financed
• Leases can be negotiated or competitively bid
• Term matches life of equipment (practical maximum is 10-12
years)
• Minimum recommended transaction size is $500,000
• Simple and streamlined process; simple application;
standardized documents; low closing costs
• Significant savings of 2-3% over commercial lease
• $242MM in leases from 2007 to date, with rates ranging from
2.65% to 4.95%, for terms of 5 to 15 years

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Green Loan Program
• Purpose is to help nonprofits leverage programs and
initiatives of the state and public utilities by providing
funding for energy efficiency projects – making up the
difference between project costs and subsidies or
rebates
• Project must qualify for a utility-sponsored Energy
Efficiency program; solar energy projects must qualify
for MA or federally sponsored economic incentives
• Amount: $50K-$500K (net of any project-related
rebates or subsidies)
• Fixed, below-market interest rates
• Term up to 7 years

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Questions?