TAX CREDIT PLACEMENT View PDF
TN INVESTCO CONSORTIUM LLC
$20 million tax credit placement completed on behalf of Memphis-based Innova Fund II
Industry/Sector: Venture Capital
Deal Type: Placement of tax credits
FourBridges Team: Andy Stockett, Dewey Hammond
Client Profile: In 2009, the State of Tennessee passed the Tennessee Small Business Investment Company Credit Act. Through the Act, the State provided funds to venture capital firms by way of tax credits. Venture capital firms applied with the State to receive tax credits, which would be sold to qualifying insurance companies. The proceeds were required to be invested in early stage Tennessee-based companies. Several venture capital funds formed a consortium and hired FourBridges to facilitate the sale of the tax credits to insurance companies.
Client Objectives: In the event one or more of the venture capital firms received an award of the tax credits, they were required to produce an “irrevocable commitment” from a purchaser within 30 days. In addition, each VC firm wanted to maximize the purchase price in order to have as large a pool of investable funds as possible.
The Challenge: Due to a delay in the announcement of the allocation “winners”, FourBridges had less than 30 days to place the tax credits. Many potential buyers of the credits were unaware of the program and had concerns relating to similar programs that had been enacted in other states.
The Process: Sixty days prior to the announcement, FourBridges compiled a list of over 90 insurance companies who could potentially purchase the credits. The team created a systematic marketing campaign including emails, direct mail and personal telephone calls. FourBridges also developed an interactive model to help insurance companies readily compute rates of return based upon different payment dates for the credits and rates of return for investments of comparable risk and duration.
The Result: Two days prior to the November 30 statutory deadline, FBCA had secured an “irrevocable commitment” for $20 million of premium tax credits, on terms that exceeded the base amount set by the State of Tennessee.
FourBridges Capital Advisors is a middle market investment bank providing sell-side, buy-side, capital raising, restructuring, and strategic advisory services primarily to closely-held and family-owned businesses. FourBridges is based in Chattanooga, Tennessee and serves clients across the Southeast, including Atlanta, Nashville, Birmingham, Memphis, Knoxville, and Huntsville.
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