Welcome to Tatonka Capital

Q -What is tax-exempt?
A - The interest portion of the payments due under a properly structured municipal lease is free from federal income taxes in the same fashion as the interest payments on a municipal bond.

Q - Why do municipalities lease?
A - The overriding reason is to spread the costs of capital acquisitions over several fiscal periods. This need can arise for several reasons:

Q - Do I need a specialist in tax-exempt municipal leasing?
A - Tax-exempt municipal leasing is a highly specialized form of financing that involves legal issues and funding methods that are totally different from those found in traditional commercial leasing. Because the interest payments or charges on the installment type payment of a municipal lease are exempt from federal, and sometimes state and local taxes, a municipal leasing company offers attractive terms at rates below those found with traditional commercial financings. In addition to having a resource to specifically purchase tax-exempt municipal lease arrangements, a leasing company specializing in municipal lease arrangements can provide the necessary financial expertise to see that the lease agreement is properly structured, contains the necessary non-appropriation provisions, and complies fully with local, state and federal laws. The opinion of a tax counsel may also be required.

Q - What should I look for in a municipal leasing company?
A - You should look for three things: experience in tax-exempt municipal leasing, flexibility and solid funding capability.

Q - Do we qualify as a tax-exempt entity, we don't pay sales taxes?
A - In order to qualify for a tax-exempt interest rate, you have to be a “municipal” entity with one of the following three powers: 1) police, 2) eminent domain, or 3) tax. There may be an exception when a not-for-profit corporation can qualify for tax-exempt financing by utilizing a conduit.

Q - If a deal is tax-exempt, does that mean I don't have to pay sales tax?
A - When we say Tax-exempt, we are speaking to the treatment of the interest portion of the lease payment as current income. It is not a statement regarding sales tax. Most municipalities and states are exempt from sales tax but not in every case.

Q - What does "essential use" mean?
A - When we say Tax-exempt, we are speaking to the treatment of the interest portion of the lease payment as current income. It is not a statement regarding sales tax. Most municipalities and states are exempt from sales tax but not in every case.

For example, even a nearly bankrupt school district would continue to make rental/lease payments for a phone system as it could not possibly operate without a phone system. The opposite of essential use equipment is a city that wants to lease purchase a water slide at a local park. Since the water slide serves no essential purpose for the city, their motivation to pay for the slide is significantly less in the event funds become tight.

Essential use becomes the primary factor in making a credit decision. If the equipment is of high essential use, the credit can be marginal. As the essential use lessens, the financial strength of the lessee becomes more important.

Q - What does "Bank Qualified" mean?
A - BQ is a result of the 1986 “tax simplification act”. In order for tax-exempt financing to be BQ, the lessee/borrower has to designate the transaction as a “qualified tax-exempt obligation”. In order to make that designation, the lessee/borrower has to issue less than $10 million of NEW tax-exempt obligations in the CALENDAR year that they enter into the financing. In other words, Bank Qualification relates to the amount of debt (leases, loans and bonds) that a municipality reasonably intends to issue in a calendar year. If the lessee has no plans to issue more than $10,000,000 during the calendar year, the municipality is Bank Qualified.

Q - Can they designate $10 million as Bank Qualified and then exceed the $10 million as not bank qualified?
A - No.

Q - What are the consequences for a bank of acquiring a Bank Qualified (BQ) transaction?
A - Many years ago when banks did not pay interest on demand deposits, they were allowed to invest in tax-exempt obligations without any arbitrage consequences. As banks started paying interest on deposits, the Internal Revenue Service started looking at the fact that banks were earning interest that was exempt from federal income taxes AND deducting the interest expense related to the funds used to acquire the tax-exempt investment. As a result, the IRS created the TEFRA rules that only allowed banks to deduct 80% of the interest costs related to a tax-exempt investment. In 1986, the IRS considered not allowing banks this privilege at all and as a result of much lobbying by municipal entities, it came up with the “small issuer exemption” or BQ. If a bank were to acquire a not-bank qualified transaction, it would lose the entire deductibility of the interest expense; however, the interest income would still be tax-exempt.

Q - What contracts do I have to use? Can I use my own lease agreements?
A - Tatonka generally requires its own lease agreements. This is due to several reasons. 1) Since we know the terms we don’t have to execute an in-depth legal review of each agreement. 2) We are sure the agreements contain the terms for insurance and liabilities we need. 3) Tatonka’s investors have approved our agreements.

Q - Do you provide financing for 501 (c) (3) corporations, as non-profits?
A - Yes, we can provide taxable leases to your organization directly or tax-exempt leases through a sponsoring conduit (like the city or county in which you reside).

Q - What is a conduit?
A - If a not-for-profit corporation (usually a university or hospital) wants to obtain tax-exempt financing, it needs to work with a local municipal entity, which becomes the “conduit”. The Conduit and the not-for-profit corporation enter into a lease for a building, for example. The conduit “borrows” funds from the investor and assigns the lease with the NPC to the investor. The assignment is on a non-recourse basis to the conduit but by virtue of its tax-exempt status, it can obtain tax-exempt financing for the not-for-profit corporation. This structure generally requires a longer term and larger amount and the total cost of issuance fees are limited to 2%. Should the fees exceed 2%, the lessee can pay them up front or it can issue a “taxable” financing for the excess fees.

Q - Why do we need an attorney's opinion in our documents?
A - Tatonka needs a legal opinion that states the documents are a legal, valid and binding obligation of the municipality. Each municipality is governed by its own Charter or other organizing document. We need a lawyer to render an opinion that a municipality executed the proper steps to enter into the lease.

Q - Do you have to have an opinion of local counsel to do the "deal"?
A - The need for opinion is often a documentation requirement from an investor and doesn't necessarily add any value to the transaction. If you can't get an opinion, look for other ways to validate the transaction, such as certified minutes of meetings that follow the process the lessee went through or internal letters of authority evidencing the signor's authority to act on behalf of the lessee.

Q - If I don't like the equipment after a year, may we "non-appropriate"”?
A - The lease is designed to honor the budgetary process and not bind future fiscal operating funds. It is not meant to switch out equipment. So, it is true that you can non-appropriate and terminate a lease agreement but certain processes relating to your governance would need to be followed. The financial markets and your ability to finance equipment in the future would take this into consideration.

Q - What are Costs of Issuance?
A – Costs of Issuance (“COI”) are typically involved with bonds or Certificate of Participation. They can include: Lessor Fees, Trustee Fees, Underwriter Fees, Bond Counsel Fees, Escrow Fees, Trustee Fees and probably others. COI are included in the total financing amount on which the borrower pays interest. This compares to a typical lease transaction in which the fees are included in the interest rate.

Q - What is a Certificate of Participation?
A - A Certificate of Participation (“COP”) is essentially a lease financing that is broken into smaller pieces ($10,000 for example) and sold in the retail market place by the underwriter/lessor. This concept came about when voters kept turning down bond issues and the investment banking industry was looking for new products. Generally, a COP requires a minimum of $3 million and a term of at least seven years to justify the Costs of Issuance; otherwise, a traditional single investor lease can be less expensive to the lessee.

Q - What's the difference between Real and Personal property?
A - In general, real property is anything that is permanently affixed to land (a constructed building, a cement poured swimming pool) and personal property is anything that can be moved easily to a different location (rolling stock, modular buildings, computers).

Q - Do I have to pay a penalty if I wish to pay off my lease early?
A - The payoff amount is slightly more than the unpaid principal. This is due to the fact that Tatonka does not charge any up-front charges, and instead amortizes them over the length of the lease term.

Q - Whom do I make my advance payment to?
A - You can make your advance payment either directly to your vendor or to Tatonka.

Q - What if the price or equipment specifications change and we have borrowed too much?
A - You can do several things with the extra money. 1) You can buy additional equipment. 2) You can apply the extra funds to your next payment. 3) Tatonka can, in some cases, remit the extra funds back to you. 4) We can change the payment schedule to reflect the actual cost of the equipment (this option may cause an interest rate adjustment).

Q - Who is responsible for the insurance and maintenance of the equipment?
A - The lessee is responsible for full insurance coverage over the course of the lease term and must produce evidence to that effect prior to the funding of a transaction. Maintenance of the equipment is also the responsibility of the customer unless specifically provided by the vendor selling the equipment. The equipment is expected to be kept in good working order throughout the term of the lease.

Q - Can Tatonka help us create an organized lease program that promotes our product lines?
A - Leasing is a more effective tool to promote sales when it is understood and used within the context of a program tailored for a specific vendor or industry. The use of a formal program can shorten the sales cycle, protect valuable margins and provide your sales force with the ability to sell solutions – not just equipment.

Q - Can Tatonka handle all my finance and lease needs for my customer?
A - Tatonka should be able to handle most, if not all, of your customer’s needs. We may, at times, bring in outside investors who can underwrite specific financial needs of your clients. In most cases, this is not evident to the end customer, since Tatonka Capital will continue to service your account.

Q - What happens if my municipal or commercial customer defaults on the lease?
A - Tatonka Capital will not come back to you and demand that you repurchase the equipment, although we may call you and ask if you are interested in purchasing the defaulted equipment. You have no liability, and Tatonka makes its credit decisions based on the lessee’s credit strength, not the vendor’s.

Q - How long does it take to pay a vendor?
A - Once the equipment has been delivered and accepted by the customer AND all documentation has been properly returned to Tatonka, 24 hours.

Q - Why is Tatonka concerned with the financial strength of a vendor when the lessee is the entity applying for credit?
A – Due to the nature of municipal business, the customer is almost always approved. We mitigate our risk through the strength of our lease documents and the stability of the vendor. Since the customer has the option to exit their lease annually, the nonperformance of a vendor could jeopardize our position.

Q - Does Tatonka provides progress payments for multiple vendors and transactions with longer lead times?
A - Yes, it is typically referred to as ”advance fund the lease” and can provide many different payment options. The lessee will usually pay a percentage of the lease payment that coincides with the percentage of the total lease amount funded to the vendor(s).

Q - On transactions with longer lead times, can a customer lock the rate prior to the equipment delivery and vendor funding?
A - Yes, there are two methods that are primarily used. The first is to advance fund the transaction and place the monies into an escrow account from which the customer would earn interest during the interim period. With the second method we would simply lock in a higher rate than currently available to protect against rising rates.

Q - How do you determine your rates?
A - There are many factors involved in determining the correct rate for a transaction, including current interest rates (cost of funds), deal size, term, type of equipment or asset, whether or not the deal is bank qualified, lessee credit rating and financial strength, etc. Once these factors have been assessed, Tatonka will offer the most competitive rate structure possible.

Q - I am quoting a lease to a charter school. May I use municipal tax-exempt rates since they are funded by a public school?
A - Charter schools generally do NOT qualify for tax-exempt rates, although there are several states, such as Michigan, where they may qualify. Charter schools typically lack several specific things that are needed to qualify as a tax-exempt entity such as the power to tax, election of officers, and the power to police.

Q - Can I work with Tatonka Capital to share in additional “"upside"” potential of a lease I am selling to Tatonka?
A - Tatonka is open to working with its vendors in structuring the transaction they need. We are willing to share the risk and reward of a transaction.

Q - My company sells primarily to commercial businesses, what benefit can municipal leasing bring to my sales team?
A - While government customers may not be your core business, you may run across opportunities where this type of financing is requested or required to close a deal. If you have a relationship with Tatonka in place, we can move swiftly to secure these opportunities and quickly fund the transaction.

Q - How can non-bank investors offer lower interest rates than banks?
A - The Internal Revenue Service issued a letter ruling called the “deminimus rule” that essentially says that a non-bank entity can invest up to 2% of its average assets in tax-exempt financings without being concerned about the arbitrage rules. This means that it can deduct 100% of the interest costs and a bank can only deduct 80%.