Understanding EDA Revolving Loan Funds April 9, 2019 1 Agenda - PowerPoint PPT Presentation

Understanding EDA Revolving Loan Funds April 9, 2019 1

Agenda RLF PROGRAM OVERVIEW AND RISK ANALYSIS SYSTEM RISK ANALYSIS CASE STUDY CORRECTIVE ACTION PLAN

EDA Revolving Loan Funds EDA RLFs established for lending – Economic Adjustment Assistance Grants to capitalize or recapitalize RLFs most commonly fund business lending, but also may fund public infrastructure or other authorized lending activities. [ see 13 CFR § 307.6] • About 510 EDA-funded RLFs nationwide • EDA investment of $566 million • Combined capital base of about $870 million • 37,500 loans made and 662,000 jobs created/ retained • $3 billion lent and $16 billion leveraged

Updated RLF Regulations REVISED EDA REGULATIONS, EFFECTIVE JANUARY 2, 2018 RLF STANDARD TERMS AND CONDITIONS REVISED MARCH 14, 2018 RISK ANALYSIS SYSTEM FINALIZED MARCH 16, 2018

Reporting Changes 1. Reporting Aligned to RLF Recipient’s Fiscal Year End 2. RLF Portfolio Loan List • Portfolio Loan List spreadsheet an d Form ED-20 9 (PDF) are password protected prior to em ailin g to EDA • Portfolio Loan List shows all loan s in portfolio history 3. Expense Reporting Aligned to Fiscal Year (12 m onths) 4. ED-20 9I no longer needed 5. Annual Audit Required for all RLFs

Risk Analysis System C – Capital A – Assets M – Managem ent E – Earnings L – Liquidity S – Strategic Results

Capital Measure: Determ ined by: 3 2 1 Capital Base Index RLF Capital Base Greater From 1.0 Less than divided by the than 1.5 to 1.5 1.0 original RLF Capital Base at the time the RLF was established

Assets Measure: Determ ined by: 3 2 1 Default Rate RLF Principal Less From Greater Outstanding for than 10% to than 20% Loans in Default 10% 20% divided by RLF Principal Outstanding for Total Active Loans

Assets Measure: Determ ined by: 3 2 1 Default Rate Over Number of Less From 12 More Time consecutive months than 12 to 24 than 24 where default rate months months months is over 20%

Assets Measure: Determ ined by: 3 2 1 Loan Write-Off The number of Less From Greater Ratio loans written-off than 16% to than 25% divided by the 16% 25% number of “inactive loans” (calculated as number of total loans minus number of active loans)

Assets Measure: Determ ined by: 3 2 1 Dollars Written-Off Loan Losses divided Less From Greater by the difference than 10% to than 20% between Total RLF 10% 20% Dollars Loaned and Total RLF Principal Outstanding.

Management Measure: Determ ined by: 3 2 1 RLF Plan Updated RLF Plan RLF Plan RLF Plan RLF Plan up to out of expired date date, and not update updated submitted within the within 6 last 6 years years

Management Measure: Determ ined by: 3 2 1 Financial Control Number and No Minor Material magnitude of audit findings findings findings* findings * Material weaknesses, for example: Questioned Costs, Insolvency, Interrelated party transactions

Management Measure: Determ ined by: 3 2 1 Timely and Date audit and/ or On time Up to 30 Over 30 Complete Reporting additional reports days late days late (such as SF-425 or or no Corrective Action receipt Plan) submitted to EDA

Management Measure: Determ ined by: 3 2 1 Tenure Shortest tenure of Greater From 2 to Vacancy Executive Director, than 3 3 years or less Lending Director, years than 2 Finance Director, years and Reporting Official

Management Measure: Determ ined by: 3 2 1 Financial Reporting Date RLF On time Up to 60 More than Financial Report with no days late 60 days ( ED-209) corrections and/ or late; or submitted to EDA needed returned to sent back RLF for major Recipient revision for minor corrections

Earnings Measure: Determ ined by: 3 2 1 Net RLF Income Portion of RLF Less From More Income Used for than 50% to than Administrative 50% 100% 100% Expenses divided by Total RLF Income

Liquidity Measure: Determ ined by: 3 2 1 Cash Percentage RLF Cash Available Less From More for Lending (Net of than 90% to than Committed RLF $) 90% of 110% of 110% of divided by RLF the ACP the ACP the ACP Capital Base compared to regional ACP

Allowable Cash Percentage Seattle Chicago Philadelphia Denver Atlanta Austin Ca p ita l U tiliza tio n Th re s h o ld  Allo w a ble Ca s h Pe rce n ta ge “75% Rule” Regional Average Sequestered Excess Cash 2 of 15 m easures

Liquidity Measure: Determ ined by: 3 2 1 Cash Percentage Number of Less From 12 More Over Time consecutive months than 12 to 24 than 24 where the Cash months months months Percentage exceeds the Region’s Allowable Cash Percentage

Strategic Results Measure: Determ ined by: 3 2 1 Leverage Ratio Total Dollars Meets or N/ A Less than Leveraged divided exceeds required by RLF Dollars required leverage Loaned. leverage

Strategic Results Measure: Determ ined by: 3 2 1 Cost Per Job RLF Dollars Loaned Less 90% to Greater divided by Total than 110% of than Jobs compared to 90% of RLF Plan 110% of RLF Plan Target RLF target RLF Plan Plan target target

Reporting, Rating & Remedy A = An n u a l R e p o r t in g B = S e m i-An n u a l R e p o r t in g C = S e m i-An n u a l R e p o r t in g & Co r r e ct iv e Act io n

Agenda RLF PROGRAM OVERVIEW AND RISK ANALYSIS SYSTEM RISK ANALYSIS CASE STUDY CORRECTIVE ACTION PLAN

Measure: 3 2 1 “A” Rated RLF Capital Base Index X Default Rate X Default Rate Over Time X ANNUAL REPORTING Loan Write-Off Ratio X ED-209 REPORT IS DUE Dollars Written-Off X 90 DAYS AFTER FYE RLF Plan X Financial Control X ANNUAL SINGLE AUDIT Timely and Complete X Reporting Tenure X 40 – 45 = A Financial Reporting X Net RLF Income X Cash Percentage X Cash Percentage Over X Time Leverage Ratio X Cost Per Job X

Measure: 3 2 1 “B” Rated RLF Capital Base Index X Default Rate X Default Rate Over Time X SEMI - ANNUAL REPORTING Loan Write-Off Ratio X ED-209 REPORT IS DUE Dollars Written-Off X 30 DAYS AFTER FYE RLF Plan X & AGAIN IN 6 MONTHS Financial Control X Timely and Complete X ANNUAL SINGLE AUDIT Reporting Tenure X Financial Reporting X 30 – 39 = B Net RLF Income X Cash Percentage X Cash Percentage Over X Time Leverage Ratio X Cost Per Job X

Measure: 3 2 1 “C” Rated RLF Capital Base Index X Default Rate X Default Rate Over Time X SEMI - ANNUAL REPORTING Loan Write-Off Ratio X ED-209 REPORT IS DUE Dollars Written-Off X 30 DAYS AFTER FYE RLF Plan X & AGAIN IN 6 MONTHS Financial Control X Timely and Complete X CORRECTIVE ACTION PLAN Reporting Tenure X ANNUAL SINGLE AUDIT Financial Reporting X Net RLF Income X 15 – 29 = C Cash Percentage X Cash Percentage Over X Time Leverage Ratio X Cost Per Job X

Case Study 1. Break Into Groups 2. Review and Analyze ED-209 and Portfolio Loan List 3. Reconvene and Present Determ ine Risk Rating Note Areas of Weakness Recom m end Actions

ED-209 Risk Scoring Measures OTHER KEY CHANGES: Overview of Other Important Changes

ED-209 Risk Scoring Measures

Portfolio Loan List OTHER KEY CHANGES: Overview of Other Important Changes

Agenda RLF PROGRAM OVERVIEW AND RISK ANALYSIS SYSTEM RISK ANALYSIS CASE STUDY CORRECTIVE ACTION PLAN

Corrective Action Plan Deliverables Due Dates Provide Updated RLF Plan to EDA for review April 30, 2019 and approval Marketing Plan and Updating Website June 30, 2019 Quarterly Loan Status Updates provided to April 30, 2019 EDA August 31, 2019 December 31, 2019 Execute a Corrective Action Plan for Audit June 30, 2019 Findings related to internal controls and timely submittal Provide documentation of training – 4 CDFA August 31, 2019 “RLF Best Practices” Webinars

Questions?? Janét Miller Janét Miller RLF Administrator RLF Administrator Denver Regional Office Denver Regional Office JMiller@eda.gov JMiller@eda.gov 303-844-5362 303-844-5362 Patrick Waggoner Patrick Waggoner Mitchell Harrison Mitchell Harrison RLF Administrator RLF Administrator Program Analyst Program Analyst Denver Regional Office Denver Regional Office Performance and National Performance and National PWaggoner@eda.gov PWaggoner@eda.gov Programs Division, D.C. Programs Division, D.C. 303-844-4088 303-844-4088 OTHER KEY CHANGES: Overview of Other Important Changes Thank you. Thank you.