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February 21, 2014

TVA Economic Development Loan Program Overview

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Goals for Today:Help everyone understand:• Why TVA makes loans

• TVA’s loan approval process and information needed for approval

• Necessary components of an economic development loan program

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TVA's MissionTVA has served our mission well over that last 80 years and we are positioning ourselves to continue supporting that mission to provide:– Reliable & affordable electricity – Environmental stewardship – Economic development

We serve the people of the Tennessee Valley with core values, such as honesty and integrity, and we always put safety first in all that we do.

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TVA Overview

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TVA Economic Development

New companies and investments to the Valley that are viable now & into the futureRecruit

Existing business & industries to grow in a sustainable mannerRetain

Communities in being prepared for economic growth through training, capacity-building & technical services

Assist

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TVA Economic Development (TVA ED) Financial Incentives• Performance-based electricity credits

• Performance-based grants for new and expanding companies

• Competitive grants for industrial park development

• Credit insurance for required deposits

• Loans

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TVA Economic Development Loan Program

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Loan Program Characteristics• Targeted towards job creation projects (i.e.,

manufacturing, warehousing, data centers, company headquarters, etc.)

• TVA is a fixed asset lender

• Customers are usually established companies; rarely make loans to start-ups

• Loans are also made to communities for speculative (spec) buildings and industrial park development

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Loan Program ObjectivesSupport job creation/retention and stimulate capital investment by:

• Providing an incentive by buying down interest costs

• Filling a financing gap

• Preparing communities for future growth– Speculative buildings

– Industrial sites

– Infrastructure development

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Loan Program Measurements• Jobs created

• Jobs retained

• Capital investment leveraged

• Low loan loss rate

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Loan Options

Economic Development Loan Fund

Direct

Participation

Special Opportunity

County

Direct

Participation

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Loan FundingEconomic Development Loan Fund• Power-funded

• Part of annual capital budget• Receives benefit of principal repayments

Special Opportunity County (SOC) Loan• True revolving loan fund

• Source is appropriations received in 1980s and 1990s

• Principal and interest payments go into Economic Development Trust Fund and are re-loaned

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Loan Process

Application and Due Diligence

Loan Review

Loan ApprovalDocumentation

and Closing Process

Portfolio Administration and Collection

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Loan Process Roles• TVA Economic Development Regional Development

Specialists: Identify loan projects and serve as primary contact with borrower

• TVA Economic Development Loan Staff: Advise Regional Development Specialists, package loan requests, coordinate approval process, manage loan portfolio

• TVA Loan Committee: Review loan requests and recommend to senior management

• TVA Corporate Credit: Perform credit analysis and present findings to Loan Committee

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Loan Process Roles• TVA Senior Management: Final approval authority for

all new loan requests

• Pathway Lending: Prepares documentation needed to close and fund a loan

• TVA Office of General Counsel: Advises throughout process, particularly with documentation

• TVA Treasury: Provide safekeeping for loan documents; process all payments and provide reporting

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Screening Potential Loan Requests

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Balance

EconomicBenefits

CreditRisk

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Identify the Players Early

Borrower

Lessor/ Lessee

GuarantorsOther Lenders

Related Companies

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Understand the Deal Structure

• Construction period• Fully operational target date

• Terms• Collateral

• Terms• Collateral positions

Other Lenders

Grantors

Project Timing

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Know the Company• Understand the ownership tree (parent company

and related companies)

• Determine the organizational structure (C corporation, S corporation, LLC)

• Know the products produced

• Evaluate management

• Verify exact legal name

• Confirm customer base (receivables aging)

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Basic Information for Company-Driven Projects• Jobs/average wage

• Capital investment

• Use of TVA funds

• Repayment source

• Funding gap

• Collateral

• Financial statements

• Sources of other funds

• Approximate timing

• Company organizational structure

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If it's a Start-up Business...Identify:• Clearly defined market

• Any contracts or verifiable commitments to do business

• Assumptions behind financial projections

• Capitalization

• Availability of working capital

• Willingness of owners to guarantee

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If it's a Spec Building...• TVA does not provide construction financing

• TVA requires a first or shared first mortgage position

• TVA has flexibility in establishing loan terms, but a clearly defined repayment plan must be identified

• TVA will consider an interest-only period when:– A firm take-out commitment is in place at the end of the

interest only period– The borrower agrees to amortize if the building hasn’t sold

during the interest-only period

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If it's a Spec Building...

Has community completed TVA

training?Who will be the

borrower?

What loan amount and terms are requested from

TVA?

Who are other lenders and what are their terms?

How will borrower repay if building doesn’t sell or

lease?

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If it's a Spec Building...• What is the borrower’s repayment capacity, i.e., how

will the borrower repay if the building does not sell or lease as quickly as projected?

• If the borrower does not have the capacity to repay, is a guarantor available?

• What is the guarantor’s repayment source?

• Who are the other lenders and what are their terms (overall deal structure)?

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Information Needed for Credit Analysis

Historical Financial Data

(3 years plus year-to-date); guarantor financial

statements

Terms for All Existing and New Debt (to project ability to service debt)

Lease Terms Appraisal of Collateral

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Company Financial Statements

Footnotes

Balance Sheet

Income Statement

Reconciliation of Net Worth

Cash Flow Statement

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Financial Statement Quality• Audit

– Substantive testing– Maximum assurance

• Review– Performs analytical procedures– Makes inquiries of management

• Compilation– Puts information in proper form – No assurance of accuracy

• Company prepared– Needs to be supplemented with tax returns

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Collateral• Identify the collateral early and specifically

• Determine collateral value– Invoices or purchase orders for new equipment (minus

taxes, shipping, installation and training)

– Appraisal for used equipment

– Appraisal for real estate

• Understand the type of appraisal and credentials of appraiser

• Think about marketability

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Loan Approval Process

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Expediting Loan Review• Provide financial information as early as possible

– Three years historical– Year-to-date

• Provide a complete loan application– Project description– Sources and uses– Customer base– Attachments

• Provide informative collateral information– Specific description– Source of value

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How are Loan Amounts Determined?• Need

– What is the requested amount and proposed use of funds?– Do TVA funds make a difference?

• Jobs– Must be within TVA’s guidelines of jobs created/retained

• Capital investment– Must be within TVA’s guidelines of other capital investment per

TVA loan dollar• Credit-worthiness

– Must identify cash flow to repay loan and have a secondary repayment source

• Security– Collateral should be within TVA’s loan-to-value guidelines– Guarantors are required in many cases

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Considerations for Loan Approval• Economic impact (jobs, capital investment)

• Collateral

• Financial liability

• Local power company and community support

• Do TVA funds make a difference?

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Developing a Business Case

Economic impact (jobs, average wage, capital

investment)

Impact on local power company

Importance of TVA loanOther considerations

(strong collateral, strong local commitment, etc.)

Business Case

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In Closing

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Results (Program to Date)• Over $240 million in loans funded

• Another $11 million committed

• Over 60,000 jobs created in projects receiving loan assistance

• Over $4.7 billion in capital investment leveraged by projects receiving loan fund assistance

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Questions?

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Contact:David Parham

@TVAed

thevalleyworks.org

dhparham@tva.com615.232.6159