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Targeting and Winning with Qualified Energy Conservation Bonds ARRA Sales Training January 4, 2010. What We’ll Cover Today. Qualified Energy Conservation Bonds – Overview Why Drive QECB’s Selling Features – QECB’s How are QECB’s allocated State’s allocations (Top 25)

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targeting and winning with qualified energy conservation bonds arra sales training january 4 2010

Targeting and Winning with Qualified Energy Conservation BondsARRA Sales TrainingJanuary 4, 2010

slide2

What We’ll Cover Today

  • Qualified Energy Conservation Bonds – Overview
  • Why Drive QECB’s
  • Selling Features – QECB’s
      • How are QECB’s allocated
      • State’s allocations (Top 25)
      • Targeting Example – Virginia focus
      • Highlights: Rates & Terms, Security & Structure
    • Sales Strategy
      • Energy Conservation Projects
      • Green Community Program
    • QECB Challenges
    • Genesee County – Voice of the Customer
    • Successful Implementation – Abundant Power Solutions
  • Questions & Wrap Up

Johnson Controls

how are qecb allocated
How are QECB Allocated
  • The U.S. Treasury allocated $3.2 billion of QECB issuance capacity to State Treasurers based on population
  • Each State was required to allocate issuance capacity to municipalities with populations >100,000 based on the municipality’s percentage of total state population

–Example: If a municipality has 150,000 residents and the state has 1.5 million residents, the State must allocate 10% of its QECB issuance capacity to the municipality

–If the municipality does not intend to issue QECBs, it may reallocate its issuance capacity back to the State

  • Processes for notifying State authorities of intention to issue QECBs (and deadlines for doing so) vary
qecb allocations
QECB Allocations

Top 25 Allocations

qecb allocations virginia
QECB Allocations - Virginia

Example

Johnson Controls

qecb rates terms
QECB Rates & Terms

Interest Rates

U.S. Treasury pays QECB issuer the lesser of:

  • The taxable rate of the bonds
  • 70% of the Qualified Tax Credit Rate (QTCR) as of the Bond Sale date—currently 5.00%

The QTCR is set daily by the U.S. Treasury and can be found here:

»https://www.treasurydirect.gov/GA-SL/SLGS/selectQTCDate.htm

Example: Net Interest Cost

      • 5.50%----Taxable interest rate paid to investor
      • 3.50%----Minus Direct Subsidy (5.00% QTCR x 70% subsidy )
      • 2.00%----Net Interest Cost (Taxable Rate-Direct Subsidy)

Maturity

  • Currently 18 years-Set monthly by the U.S. Treasury**
qecb security structure
QECB Security & Structure

Bond Security

  • Revenues
  • General Obligation
  • Collateral (equipment, property, etc)

Structures

  • Bullet -All principal is paid back at maturity
  • Serial -A portion of the bonds matures at regular intervals
  • Term bond with sinking fund
slide11

Sales Strategy

  • Conference Report to the American Recovery and Reinvestment Act of 2009 includes the following statement regarding Congressional intent about the broad intended scope of this term:
    • "Also, the provision clarifies that capital expenditures to implement green community programs includes grants, loans, and other repayment mechanisms to implement such programs. For example, this expansion will enable States to issue these tax credit bonds to finance retrofits of existing private buildings through loans and/or grants to individual homeowners or businesses, or through other repayment mechanisms….Retrofits can include heating, cooling, lighting, water-saving, storm water-reducing, or other efficiency measures.―
  • Example: Unsecured Commercial EE Loan Program
  • Rules
    • A maximum of 30% of QECB allocations may be used for private activity purposes
    • All bond proceeds must be spent within 3 years or used to redeem bonds at the end of that 3 year period
    • Issuers must have a binding commitment with a 3rdparty to spend at least 10% of the bond proceeds within 6 months of the issuance date
    • Only 2% of the bond proceeds can be used towards cost of issuance

Qualified projects are defined broadly: Examples of qualified projects include:

  • Energy efficiency capital expenditures in public buildings – at least 20% energy consumption reduction
  • Renewable energy production
  • Various energy-related research and development
  • Efficiency/energy reduction measures for mass transit
  • Energy efficiency education campaigns
  • Green communities programs

Green Community Projects

Energy Conservation Projects

QECB.pdf

qecb challenges
QECB Challenges

Low QECB volume allocations

  • QECB volume allocations often do not have sufficient size to wet investor appetite
  • Issuers might want to consider a pooled issuance

Investor unfamiliarity

  • Taxable investors are not as familiar with municipal credits
  • Build America Bonds have helped familiarize the taxable investor base with municipal credits

A bond issuance takes several months to structure, market, price and close

QECBs might strain bond issuance limits for some issuers

qecb considerations
QECB Considerations

Johnson Controls

slide14

Voice of the Customer

  • Account:
  • Genesee County, Michigan
  • George Martini
  • Finance Director

JCI Account Leadership:

Daniel Mack

Energy Solutions Account Executive

Johnson Controls

customer needs
Customer needs
  • What was driving the customer
      • Create Jobs
      • Cost Efficiency
      • Finance Needed Capital
  • Would the customer have done this without ARRA
      • In the customers words
  • Why did the customer implement with QECB
      • Customer’s perspective on the QECB
overview of the funding source
Overview of the funding source

Customer’s perspective on the QECB

  • Type of fund or funds
    • Customer’s perspective on the QECB
  • How was the money distributed
      • Customer’s approach to accessing and issuance
  • Application process
      • As defined
  • Restrictions on the fund
      • Any unique restrictions of use requirements
  • Customers response to the fund availability
customer solution
Customer Solution
  • Amount of ARRA funds, interest rate
      • $9.4M in Self Funded Improvements
      • QECB $7,815,784 at 5.59% interest rate (1.91% Net…Total amount saved using QECB over Tax Exempt Bonds - $1.5M
      • $1.6M Energy Efficiency & Conservation Block Grant
  • Improvements
      • Building Automation Controls Solar PV & Thermal
      • Lighting/Lighting Controls IT (1200 VOIP Phones & Network Upgrade)
      • New RTU’s/Boilers Windows/Doors Roofs (Repair and New)
      • Retro-commissioning Fire Panel Replacement
      • Critical Services (Mechanical, Controls, M&V)
  • Internal Resources 4m vs
      • Systems (Including NIS, F&S), Service and Energy Solutions
  • Unique qualities of the job
      • Fully funded by ARRA, Extensive IT Improvements, Solar w/Kiosk, ≈100 Local Jobs
slide18

Successful Implementation

  • Abundant Power
  • Charlotte, North Carolina
  • Larry Ostema
  • Managing Partner

Johnson Controls

successful implementation abundant power solutions
Successful Implementation – Abundant Power Solutions
  • Current:
  • Market: $171 million through 9/2010 over 15 issuances
  • Geography: 12 of 15 issuances west of Mississippi
  • Placement: 90% privately placed to bond purchaser(s)
  • Security: 50% general obligations bonds; remainder revenue, including COP

Opportunity:

Challenges: Local government bond issuance; secured by series of junior lien credits

Solution: “Corporate” conduit (i.e., state)issuance for local government “green community program,” potentially linked with “side car” for government owned facilities

Potential purchasers: IOUs, manufacturers, foundations, other synergistic

Johnson Controls

slide22

Questions & Wrap Up

Johnson Controls