Unwind after 7-Year NMTC Compliance Period: $10 Million NMTC Financing

Forgiven Loan to a Single Borrower

With respect to the Forgiven Loan to a single Borrower, at the end of the 7-Year NMTC Compliance Period, the NMTC financing unwinds as follows:

  • the Tax Credit Purchaser sells its 100% ownership interest in the Investment Fund to an affiliate of the Borrower/QALICB for a nominal amount; and
  • the Allocatee sells its 0.01% managing interest in the CDE to such affiliate of the Borrower/QALICB for a nominal amount.

The effects of the unwind are:

  • the  Forgiven NMTC Loan/QLICI becomes an intercompany loan (i.e., effectively forgiven); and
  • the Senior NMTC Loan/QLICI also becomes an intercompany loan and, depending on the terms of the Leverage Loans, are: (a) amortized to maturity; (b) refinanced; (c) paid off; or (d) effectively forgiven if the Leverage Lender is an affiliate of the Borrower/QALICB (which used its own funds; federal, state and local subsidies; and up to 2 year’s of certain prior expenditures).

The following flowcharts illustrate the “unwind” transactions and the post-“unwind” structuring of a NMTC financing to a single Borrower.

Unwind after 7-Year NMTC Compliance Period: Forgiven Loan to a Single Borrower (“Unwind” Transactions)

Unwind after 7-Year NMTC Compliance Period: Forgiven Loan to a Single Borrower (Post “Unwind”)

Non-Forgiven Loans to a Pool of Borrowers

With respect to the Non-Forgiven Loans to a pool of Borrowers, using our $10 million example, at the end of the 7-Year NMTC Compliance Period, the NMTC financing unwinds among the Tax Credit Purchaser, the Allocate and the Leverage Lender without any involvement from an affiliate of the Borrower (unlike the unwind after the 7-Year NMTC Compliance Period involving the Forgiven Loan to a single Borrower).

The effects of the unwind are:

  • the Non-Forgiven Loan begins to amortize through its up to 40-year maturity date; and
  • if applicable, a small portion of the Non-Forgiven Loan is forgiven (or a small Forgiven Loan) at such time or thereafter.

Although the typical NMTC financing structure is quite complex based on all of the sources of funds, the fundamental economics and initial structure of any NMTC financing is illustrated in the following link:

For a determination of whether the Forgiven Loan or the Non-Forgiven Loan is available to a Borrower based on the “Forgiven Loan Test” and the sizing of the NMTC financing, please click on the following link.

Please click the following link to watch our pre-recorded webinar:

To apply as a CDE for NMTC for a NMTC Allocation Award, please click the following link: