Special Board of Aldermen 11-24-2020 Page 9
The acquisition in financing is done through a complex set of documents that are designed to meet New
Market Tax Credit requirements, investor requirements and to achieve the ability of tax counsel, myself
included and Mascoma’s National Counsel included to give a tax opinion to Mascoma that the transaction
qualifies for the New Market Tax Credit. So that’s Phase One, that’s the acquisition and financing Phase.
Second is the Operational Phase during 7 years after the closing of the financing. During this period of
time, the project needs to continue to be operated, continue to be an active business. Spectacle
Management is going to be managing the project during that period of time. You don’t see the funds flow
during that period of time on this chart, but what’s going to happen is that the City is going to pay rent to
Impact Corp. under its lease and (audio cuts out) lease are going to find their way back to the City in the
form of repayment of debt because the City has made this $7 million dollar loan and also find their way
back to the City because any rental funds that are paid to Impact Corp. in excess of what Impact Corp has
for debt service and costs, will be distributed back up to the City through 201 Main Street Real Estate.
During the Operational Phase there will also be some reporting obligations, the Impact is going to need to
file reports with Mascoma so that Mascoma can demonstrate to the Federal Government that everything is
being done appropriately. There are some community benefits obligations as well, that the project be
providing benefits to the community through the existence of the Performing Arts Center and attendance at
events and things of that nature. That’s the second phase.
The third Phase is what happens at the end of the 7-year New Markets Tax Credit compliance period. After
7 years, there is no longer a requirement to continue to comply with the requirements of the New Markets
Program. Unfortunately, the IRS does not allow us to simply today enter into a binding contract, it says
after 7 years we erase the slate completely clean and undo all of this, were that life were so simple.
Instead what has evolved is a system where Mascoma has a document that is called a Put Option.
Mascoma can Put its interest in the Impact Investment fund the yellow box at the top, Mascoma being the
equity investor shown to the right there. Mascoma has the ability to put its interest in the investment fund to
201 Main Street Financing Corp. the City’s affiliate for $1,000.00. At that point, if Mascoma chooses to Put
201 Main Street pays Mascoma $1,000.00 and Mascoma is out of the deal completely. Notice | use the
word, if Mascoma chooses to put, because they are the ones that have the option at that point in time.
What has happened over time in the industry, is that equity investors almost always want to get out of
transactions at that point, they have received all their bargained for benefits, there’s nothing left for them in
the transaction, other than have to continue to report this on their tax return and their financial statements
and it becomes an administrative burden to them. So basically investors, the expectation is, although there
can’t be an assurance of it, that they will Put after the end of the 7 years. And you might say, well what
happens if they don’t? Suppose that Mascoma doesn’t Put. Well if they don’t Put, then 201 Finance
Corporation has what’s called a Call Option. 201 Real Estate Finance Corporation can elect to purchase
Mascoma?’s interest in the investment fund at the fair market value of that interest at that point in time. Fair
market value at that point in time is going to be very small because they’ve already gotten all the economic
benefits out of the transaction. So, one way or the other, there is the ability to at least wipe the Mascoma
part of this screen clear and have every entity that remains be the City or a City affiliate. And after the
interest and investment fund is acquired, the City can, at that point in time, opt to retain some or all of the
aspects of this structure or simplify it. That will be dictated at that point in time, 7 years out by tax,
business, and other considerations that the City can evaluate after the end of 7 years but at that point in
time, everything will be back in the control of the City.
So that’s sort of an overview of the transaction, an overview of the three Phases and an overview of the
documentation that will be signed in this transaction which is very typical of New Markets deals as they are
done nationally. And at this point, | think | am going to turn it over to Celia Leonard, who will go over the
Omnibus Resolution and link the approvals that you are being asked to give tonight to the provisions of the
transaction. And certainly, | too, am available to answer any questions when the question and comment
time arrives.
