Understanding New Revisions to the EDA RLF Program Implementation of RLF Risk Analysis System November 2018 1
Agenda REVISED RLF REGULATIONS AND RISK ANALYSIS SYSTEM RLF REPORTING AND RATING LEVELS RLF BEST PRACTICES PROGRAM
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
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 520 EDA-funded RLFs nationwide • EDA investment of $538 million • Combined capital base of about $823 million • 37,500 loans made and 662,000 jobs created/retained • $3 billion lent and $16 billion leveraged
Risk Analysis System C – Capital A – Assets M – Management E – Earnings L – Liquidity S – Strategic Results
RISK RATING RISK RATING – HOW AND WHY
EDA RLF Rating Letter
Capital Measure: Determined 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: Determined 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: Determined 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: Determined 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: Determined 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: Determined 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: Determined 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: Determined 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: Determined 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: Determined 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: Determined 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: Determined 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 Capital Utilization Threshold Allowable Cash Percentage “75% Rule” Regional Average Sequestered Excess Cash 2 of 15 measures
ACP Example Cash RLF Name Capital Base Cash Available Percentage RLF-1 $4,500,000 $1,200,000 27% RLF-2 $7,600,000 $2,800,000 37% RLF-3 $1,670,000 $630,000 38% RLF-4 $13,872,930 $2,974,025 21% RLF-5 $5,423,000 $900,000 17% Regional $33,065,930 $8,504,025 26% Total Total RLF Cash Available for Lending = $8,504,025 Total of All RLF Capital Base Amounts = $33,065,930 $8,504,025 ÷ $33,065,930 = 26% Allowable Cash Percentage* *Update Annually
Liquidity Measure: Determined 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: Determined 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: Determined 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
Agenda RLF REPORTING AND RATING LEVELS
Reporting, Rating & Remedy A = Annual Reporting B = Semi-Annual Reporting C = Semi-Annual Reporting & Corrective Action
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
RISK RATING RISK RATING – HOW TO INCREASE YOUR RATING
Reporting Changes 1. Reporting Aligned to RLF Recipient’s Fiscal Year End 2. RLF Portfolio Loan List • Portfolio Loan List spreadsheet and Form ED-209 (PDF) are password protected prior to emailing to EDA • Portfolio Loan List shows all loans in portfolio history 3. Expense Reporting Aligned to Fiscal Year (12 months) 4. ED-209I no longer needed 5. Annual Audit Required for all RLFs
AUDITS AUDITS - TYPES
Reporting Changes • New RLF Standard Terms & Conditions and formal Amendments to Financial Award (CD-451) have been issued and returned • Removed the Automatic Sequestration Requirement • Level “A” Recipients will report to EDA on an annual basis within 90 calendar days following the FYE • Level “B” and “C” Recipients will report on a semi-annual basis within 30 calendar days following FYE and again within 30 calendar days of the end of the second quarter of their fiscal year.
Federal Grant Rate FEDERAL GRANT RATE % CALCULATION: PART II / A.1 (EDA FUNDING) / PART II / A.3 (RLF FUNDING) OTHER KEY CHANGES: Overview of Other Important Changes
Changes to Form ED-209 CURRENT CAPITAL BASE / INITIAL CAPITAL BASE = GROWTH OTHER KEY CHANGES: Overview of Other Important Changes ALLOWABLE CASH % = PROVIDED BY EDA NO BLANKS
Determining ACP OTHER KEY CHANGES: Overview of Other Important Changes CASH PERCENTAGE (RLF CASH AVAILABLE FOR LENDING, % OF CAPITAL BA SE) IS COMPARED TO ALLOWABLE CASH PERCENTAGE (ACP, UPDATED EACH YEAR ) NO BLANKS
Excess Cash • Excess cash no longer automatically sequestered. • Instead the excess cash in considered as one factor in the Risk Analysis rating for the Recipient. • Sequestration or Disallowance of the excess funds is viewed as an option to obtain compliance with the terms of the RLF grant award.
Management Tenure OTHER KEY CHANGES: Overview of Other Important Changes NO BLANKS
Portfolio Loan List OTHER KEY CHANGES: Overview of Other Important Changes RLF PORTFOLIO HISTORY
REPORTING PORTFOLIO HISTORY – HOW AND WHY ED-209 REPORTING AND OIG
CDFA/ EDARLF Best Practices Program CDFA/ EDA - RLF Best Practices Program
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