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Municipal Construction Project Financing

Challenge faced:  

How to finance a multi-year Municipal Construction Project, with no equity.  (“MCP”) using a Bullet Payment structure option. Contractor is bidding on a US$60 million Movie Studio to create Jobs and take advantage of generous tax credits offered for movie production. 

  • No bank is willing to provide more than 60% of the loan amount.  Project does not qualify for SBA or USDA loan programs.
  • Contractor has Hollywood Studio production contracts for 24 months. But income, tax credits and incentives will not pay out for 3-5 years. So, six months of operating capital will be needed up front to cover start up costs. 
  • Investors are uncomfortable to commit without seeing the facility constructed.
  • Municipality desires the jobs from the production and the hospitality services involved in movie production.  History shows that due to up-front cash needs, Movie Studio production projects are often not built as promised.
  • Municipality wants to see the building project up and operating before they provide support.  Understandably, they fear a lack of performance as agreed and control after the Municipal aid is provided. 
  • Politically, taxpayers are not going to be thrilled with the grants and aid requested.
Opportunity discovered:  

Contractor proposes a Five (5) year $60 million bonded construction contract to “MCU”, with one single, guaranteed payment on the 60th month of $98million (“zero coupon loan” or “bullet payment”) in the form of a “put” option bond offering or term debt bank loan.

  • Municipality provides no cash and no grants, escrows $500,000 in credit enhancement taxes, plus additional sales and hotel tax revenue from studio using accommodations in municipality. 
  • Jobs for local college theatre students as extras.
  • Municipality receives a first position on all assets;  will escrow negotiate project debt payments necessary to attract bank financing before the 60th month. 
  • Municipality secures personal guarantees of owners and investors, as well as escrowing needed up-front operating capital prior to the closing.  This is released upon receipt of financing take out commitment.
  • In case of default, Municipality is responsible for an irrevocable “put option” to issue a taxable bond, or provide financing prior to the 60th month, structured with a ‘waiver of appropriations risk’ bond.
  • City Attorney liens all tax credits and production contracts.
Benefits:  

100% project costs and profit, plus $500,000 to escrow to Municipality for credit enhancement taxes.  Investor’s cash is “dry” and ready for new business opportunities.

  • Lender received no equity stake of any type, but provided all mezzanine and venture capital.
  • All purchased project equipment and real estate assets are available for traditional bank collateral financing.
 
Please note:  We respect the confidentiality of our client’s transactions. The purposes of these examples are to illustrate the unique features and benefits of our financing structures. Key details are not disclosed or may be changed to protect confidentiality.

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