1. 1 2015 1 May 5, 2015Room: Alvarado A Presented by: Mike Lettig KeyBank Native American Financial Services Derrick Watchman Navajo Gaming Enterprise Townsend Hyatt Orrick, Herrington & Sutcliffe LLP Financing Tribal Projects

2. 2 2015 Discussion Topics  Telecom as Infrastucture  What is Tax Exempt Debt?  What structures of Debt may be available?  How do Indian Tribes borrow using Tax Exempt Debt?  Using Tax Exempt Debt for Tribal Utilities  Special Tax Issues for Tribal Telecom Projects  What information do Banks need to look at Financing?  How can I combine different types of financing for a project?

3. 3 2015 Telecom as Infrastructure  Telecom as a Utility  How do other governments finance infrastructure/utilities  System component versus stand-alone capital project  Credit considerations  Planning considerations  Borrowing versus pay-as-you-go

4. 4 2015 What is Tax Exempt Debt?  A Loan, Line of Credit, or Bond Instrument used for a qualified project or need  Advantage – lower interest cost because investors/lenders do not pay income tax on interest payments received. Savings are passed on to the borrower in the form of a lower rate  Qualified projects – public infrastructure, municipal utilities, essential government services, and qualified economic development projects

5. 5 2015 What structures of Debt may be available?  Loans  Construction Loans – loan taken to finance construction of a project where the lender monitors construction and makes distributions of loan proceeds as construction progress is verified  Multi-Draw Term Loans – loan that has an initial draw period, where money can be advanced incrementally usually under interest-only terms, and converts to a repayment period where draws stop and principal payments begin  Single Draw Term Loans – loan that advances in one payment, after which principal and interest payments are due periodically until maturity  Operating Line of Credit – a credit facility that establishes a maximum credit commitment for a specified period, advances funds to borrower which reduces remaining availability, requires periodic interest payments. Principal payments reestablishes credit availability.  Bonds  Debt issued as “securities” and not a loan  May have higher interest rates and/or longer maturity than loans

6. 6 2015 How do Indian Tribes borrow using Tax Exempt Debt?  Regular Tribal Governmental Tax Exempt Debt  Tribal Governments can issue tax exempt debt in the form of loans or bonds under Section 7871 of the Internal Revenue Code  Used to finance “Essential Government Functions” and certain qualified manufacturing facilities  Tribal Economic Development Bonds or Loans (TED-B)  Tax-Exempt Bonds that Indian Tribal Governments can issue to finance any project or activity for which State or local governments could issue tax-exempt bonds.  Not subject to “essential government function” activities limitation that apply to Tribal Bonds under Internal Revenue Code Section 7871(a) through (e).  Annual Volume Cap Limit  Period Commencing April 1, 2015: $262,799,837  Indian Tribal Government must apply for an allocation

7. 7 2015 Using Tax Exempt Debt for Tribal Utilities  Essential Government Function Test  Traditional Utility where output is produced AND consumed on-Reservation usually qualifies as Essential Government Function  FCC has approved rules that regulate Broadband access as a public utility  Financing projects that meet this test is generally easier and does not require application for Tribal Economic Development Bond allocation  Non-gaming Economic Development  Does this project distribute services, utilize/own/build infrastructure on- Reservation or off-Reservation? – Commerciality Concern  Will this project require a TED bond allocation?  Can New Market Tax Credits be utilized for the project? Source: Financing Tribal Telecommunications Projects with Tax Exempt Debt by Townsend Hyatt

8. 8 2015 Special Tax Issues for Tribal Telecom Projects  Telecommunications projects may involve mixed uses –  Some governmental, some commercial  Mixed uses may mean some assets are eligible for tax exempt financing while others are not  Must make a reasonable allocation between the two – i.e., objective standards of measurement that reflect fair value of use of assets by private parties  Need to ask what assets are being financed and how they will be used  Need to ask where financed assets will be located – it’s harder to use tax exempt debt for off-reservation telecom assets  Software is generally treated as being located where it’s loaded on the server  Private activity considerations  Purchase and/or leasing arrangements  Revenue-sharing arrangements  Non-preferential use by private party as a member of the general public/private activity Source: Financing Tribal Telecommunications Projects with Tax Exempt Debt by Townsend Hyatt

9. 9 2015 What information do Banks need to look at Financing?  Due Diligence Items Often Required by Banks  Project Information: Project description, scope, and other details  Identify project cost, equity (if any) and financing need  Identify sources of repayment (historical, present and pro-forma) “Project finance” repayments may be challenging. Energy projects with PPA’s can be monetized  3 years of historical financials  Additional detail on sources of repayment, e.g. distributions from component units would require review of component unit financials.  Projected financial performance, typically 5+ years  Construction information: including budget, timeline, construction contracts, GMP if completed, contingencies, etc.

10. 10 2015 How can I combine different types of financing for a project?  Identify characteristics of project and determine which financing bucket each project component falls into  “Essential Government Function”  Non-Gaming Economic Development  On/Off Reservation  Explore combining taxable, tax exempt, and NMTC into a blended financing solution  Understand the debt repayment capacity of your Tribe for this and any other contemplated projects  Loan Type  Length of amortization  Fixed or Variable Interest Rates  General or Limited Recourse

11. 11 2015 Summary  Fully develop your project  Plans/feasibility  Regulatory and applicable governmental approvals  Construction costs/timelines  Budgets (construction and operational), contingencies  Capital stack  Equity (sources: tribe, NMTC, strategic partner)  Funding (short and long term)  Operating budget (revenue, cost, month to month and cash to cash cycle)  Define priority of objectives and the business/regulatory/service intersection  Service to community  Employment  Profit