Tax Credit Fund Formation
Holland & Knight’s Tax Credit Transactions Practice represents numerous sponsor firms that specialize in underwriting, acquiring, overseeing and managing investments in low-income housing, historic rehabilitation and renewable energy facilities. We assist these sponsor firms, which act as intermediaries between project developers and equity capital investors, in both forming tax credit funds to raise investment capital and in making investments.
Our team represents many different sponsors and has organized scores of investment funds for them. Some of the investment funds (dedicated funds) are organized for a single investor; others have multiple investors. Some of the funds (specified property funds) invest only in properties that have been identified in advance of the investment fund closing; others (blind pools or partially blind pools) have not identified properties in advance and leave it to the discretion of the sponsor to select properties; still others have not identified all properties in advance and require investments in any properties to be approved by the fund investors.
Over the past 10-plus years, many of the investment funds we have organized have been "guaranteed," "insured" or "credit enhanced." The common characteristic of these funds is that the investors have negotiated to receive a specific yield on their investments, which they expect to receive entirely from the tax benefits to be generated by the underlying properties. Generally, to the extent that the underlying properties underperform, the investors in such investment funds have the right to be made whole on their negotiated yield by a cash payment from a creditworthy party.
We have significant experience working with many different credit enhancers who use a variety of instruments to enhance an investment in such funds, including corporate guarantees, insurance policies, surety bonds, letters of credit and swap arrangements. We also have worked to develop alternative forms of credit enhancement, such as "partnership flip" structures, that do not involve any of the foregoing instruments but nevertheless provide an enhanced return to investors. Our work in this area has involved extensive tax analysis and the tax opinions we deliver in connection with such transactions have been widely accepted by the major corporate investors and their nationally recognized law firm representatives. In addition, we have developed a set of documents that are recognized for their clarity and have been proven over time to be readily adaptable to the different forms of credit enhancement that are used.
In addition to the credit enhanced investment funds that we have organized, we also assist clients in the organization and offering of many non-credit enhanced funds. Although some investors participate in both credit enhanced and non-credit enhanced funds, others tend to participate in only one category. By organizing both kinds of funds, we have worked with most of the major investors in the tax credit industry.
As with other areas of our Tax Credit Transactions Practice, the high volume of deals we handle in the fund formation area keeps us on the cutting edge of the capital markets for tax credit investments. The combination of our experience in advising a wide range of clients on investments in tax credit projects and in structuring investment funds that will attract capital allows us to provide comprehensive, "one-stop shopping" for tax credit industry participants.