Legislature(2013 - 2014)BARNES 124
03/27/2013 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB175 | |
| HB125 | |
| HB74 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 175 | TELECONFERENCED | |
| *+ | HB 125 | TELECONFERENCED | |
| += | HB 74 | TELECONFERENCED | |
HB 74-AIDEA: LNG PROJECT; DIVIDENDS; FINANCING
4:08:44 PM
CHAIR OLSON announced that the final order of business would be
HOUSE BILL NO. 74, "An Act relating to development project
financing by the Alaska Industrial Development and Export
Authority; relating to the dividends from the Alaska Industrial
and Export Authority; authorizing the Alaska Industrial
Development and Export Authority to provide financing and issue
bonds for a liquefied natural gas production system and natural
gas distribution system; and providing for an effective date."
4:09:01 PM
CHAIR OLSON explained that the committee previously heard this
bill and public testimony has been closed. He explained that
the liquefied natural gas (LNG) and trucking of LNG and propane
was removed from this bill, and therefore what remains in the
proposed committee substitute (CS) for HB 74 is the authority to
allow the Alaska Industrial Development and Export Authority
(AIDEA) the ability to provide direct financing on projects.
4:09:33 PM
REPRESENTATIVE REINBOLD moved to adopt the proposed committee
substitute (CS) for HB 74, labeled 28-GH1738\N, Bailey, 3/20/13,
as the working document.
CHAIR OLSON objected for the purpose of discussion.
4:10:08 PM
TED LEONARD, Executive Director, Alaska Industrial Development &
Export Authority (AIDEA), Department of Commerce, Community, &
Economic Development (DCCED), introduced himself.
MARK R.DAVIS, Deputy Director, Infrastructure Development,
Alaska Industrial Development and Export Authority (AIDEA),
Department of Commerce, Community & Economic Development
(DCCED), introduced himself.
MR. LEONARD summarized that for the past three years AIDEA has
been working with the legislature to help modernize the tools
AIDEA has to use. He offered his belief that this bill contains
one tool to assist AIDEA in development projects. This vehicle
will assist AIDEA in working with the banking industry in
Alaska, as partners on development projects. For example, he
related that AIDEA's loan participation program has been wildly
successful, with over $468 million of financing for Alaska
businesses. He offered his belief that this tool will assist
AIDEA in moving forward with banks and by helping AIDEA match
financing to specific projects. He explained in some instances
AIDEA should own a portion of a project, such as major
infrastructure industrial road projects in which numerous
entities use the project. However, in some instances, it makes
more sense for AIDEA to promote the project through financing.
Certainly, reasons exist in which AIDEA would not want to own a
portion of the projects, such as for mineral projects. In those
instances, AIDEA might be involved in promoting a mill in an
area to provide major resource development; however, AIDEA may
not want to take on environmental risks. As the financier,
AIDEA's role is as the lender but not in dismantling a project,
reclamation of tailings, or other aspects of a mining project.
He concluded that this direct financing will provide risk
mitigation since AIDEA would not be involved as an owner.
Finally, he offered that this tool will be a very efficient and
effective vehicle to work with Alaska's financial institutions
to promote projects in Alaska.
4:13:24 PM
REPRESENTATIVE JOSEPHSON was unsure of what it meant to finance
a project but not own it. He understood the economic or legal
reasons, but he was unsure of the separation.
MR. DAVIS replied he believes AIDEA's issue is not to avoid risk
but to manage risk. He explained that when investing in a
large-scale project that may be extended, the financing entity
does not have any day-to-day authority over the project, but
could become unintentionally liable for an operator's mistake.
Therefore, traditionally, lenders don't have liability for the
project, but owners do. Further, if AIDEA were to act as an
owner, AIDEA would need to engage in more transaction costs,
which are costs that don't move the project forward, but cost
the state money.
CHAIR OLSON provided an example in which AIDEA owns a rig, but
every time it is used the rig hits gas. He offered his belief
the company is on its fourth well.
MR. LEONARD clarified that AIDEA has collateral on Buccaneer's
rig moving out, but not for the on-land operation.
4:15:58 PM
REPRESENTATIVE JOSEPHSON recalled that AIDEA participates in
loan assistance programs.
MR. LEONARD answered that AIDEA has three main programs,
including the loan participation program, in which AIDEA
partners with banks on loans. He summarized that AIDEA can buy
up to 90 percent of the loan up to $20 million. In essence,
AIDEA partners with banks on these loans to provide long-term
financing. In response to a question, he clarified that is
different than direct financing.
MR. LEONARD explained that the second program is AIDEA's
development financing, in which AIDEA provides financing for
projects, but must have an ownership stake. Thus AIDEA can
either invest in a project via a limited liability corporation
(LLC) or have direct ownership. Over the last couple of years
one of the tools AIDEA has worked with the committee on has been
the ability to own investments through corporations instead of
direct ownership. Third, AIDEA can also issue bonds for
projects using its revenue bond or conduit bond program.
However, this bill would allow AIDEA the ability to provide
financing for projects and instead of having an ownership stake
in a project, AIDEA would provide direct financing for the
project - with no intention of direct ownership - or AIDEA could
provide guarantees on a project. For example, if a bank wanted
to partner with AIDEA, the corporation could layer a guarantee
of the financing for the project.
MR. DAVIS concurred.
4:18:31 PM
REPRESENTATIVE JOSEPHSON asked if this bill is not passed,
whether AIDEA would still consider ownership in projects such as
the Niblack Project in Southeast Alaska or whether the lack of
direct financing would end the possibility of involvement.
MR. LEONARD said it becomes a potential in how to consider the
project, since risk assessment is a portion of the project. It
could change the cost of the financing; however, he suggested
that changing this type of financing tool does not change the
projects or the amount of the investment. Instead, this bill
provides a tool that AIDEA believes is more effective.
Therefore, no; it would not change AIDEA's ability to
participate in the Niblack Project, but it would carry more risk
with the financing of the project.
MR. LEONARD recalled an advantage previously discussed, such
that with direct financing the transactional cost is much less
than for ownership. He explained AIDEA would need to spend more
money to write up, in essence, a partnership, than it would
spend through direct financing, and as Mr. Davis mentioned, all
different scenarios must be considered when AIDEA is a partner
versus being limited as a financier.
4:20:27 PM
REPRESENTATIVE JOSEPHSON asked what other development projects
AIDEA is considering for direct financing. The one that came to
his mind was the rare earth project.
MR. DAVIS answered that AIDEA is considering direct financing
for any industrial plant it may wish to finance due to
operational issues, as well as for financing opportunities. He
stated that AIDEA might not do a project because AIDEA tries to
work with the private sector, and with project financing, AIDEA
can attract commercial bank financing; however, if AIDEA is an
owner, it seeks equity partners such as investment banking.
Thus, AIDEA would be limited in the type of banking it could
approach. Thus, AIDEA would tend to use direct financing when
it would like to work with commercial banks; and use financing
when it would like to invest in a plant or facility with a
limited life. Additionally, as Mr. Leonard said, AIDEA would
invest when it did not see a purpose for state ownership of the
infrastructure, but again, as previously mentioned with a road
with access needed, AIDEA may wish to require ownership interest
in order to require the influence.
4:22:05 PM
MR. LEONARD outlined three projects AIDEA would consider for
direct financing, including Ucore, Prince of Wales; Niblack; or
oil production facilities and industrial facilities, which would
be more effective with direct financing than with ownership.
REPRESENTATIVE JOSEPHSON recalled that AIDEA has done direct
financing with hotels and office buildings.
MR. LEONARD answered yes.
MR. DAVIS clarified the projects in question really weren't
direct financing, but loan participation since those projects
are tied to commercial real estate and cannot be used for other
purposes; however, it is difficult since AIDEA needs secured
interest which is easier to do with real estate since it has an
appraised value than with a chattel. He clarified that AIDEA
has participated in hotels and bed-and-breakfast operations
throughout the state and on investment through loan
participation in a production facility in Sitka. He also
mentioned AIDEA has office building projects in Fairbanks,
Anchorage, and Juneau.
4:23:31 PM
REPRESENTATIVE JOSEPHSON asked whether Mr. Davis has a sense of
the reason the enabling act for AIDEA restricted it to
development projects with an ownership interest.
MR. DAVIS answered that his research indicated that AIDEA's
statutes were based on a West Virginia development authority,
using a model of project ownership. It appears this model was
popular in the 60s and 70s; however, there has been a change in
the U.S. such that New Jersey, Massachusetts, and Indiana have
moved to project financing. That doesn't mean that having
ownership interest isn't a bad tool, so AIDEA is merely asking
to have all the tools.
4:24:30 PM
MR. LEONARD explained that AIDEA can still influence projects
with direct financing if a state interest exists. For example,
one of the reasons to have ownership of the rig mentioned
earlier was to keep it in Alaska waters. He said that could
still be done with direct financing through contracts in the
loans.
MR. DAVIS offered his belief that not moving out of the
jurisdiction would represent a reasonable commercial covenant.
4:25:43 PM
REPRESENTATIVE REINBOLD moved to report the proposed committee
substitute (CS) for HB 74, labeled 28-GH1838\N, Bailey, 3/20/13,
out of committee with individual recommendations and the
accompanying fiscal notes. There being no objection,
CSHB 74(L&C) was reported from the House Labor and Commerce
Standing Committee.