Up next: Governor’s plan on tax credits morning meeting



47912194 - a forehead of brunette woman who is thinking about solution of complicated math problem. math formulas are on the black chalkboard. a light bulb as a concept of a solution. analytics approach.

Commonwealth North’s Fiscal Action Coalition is hosting former Attorney General Craig Richards at 7:30 am on Friday, Sept. 9, to give him a chance to explain Gov. Bill Walker’s plan for the Alaska Permanent Fund purchase of the delinquent tax credits owed by the State of Alaska to small oil and gas explorers.

The meeting will take place at the Morris Communications Building meeting room, side entrance, 301 Danner Ave in Anchorage.

Richards made a presentation to the Permanent Fund Board of Directors last Friday. While serving as attorney general, Richards also served on the Permanent Fund Corporation board.  He is now an oil and gas consultant to the Governor, although his contract specifies he reports to the new attorney general.

To summarize, the governor proposes that the Permanent Fund Corporation buys the hundreds of millions of dollars in tax credits it owes oil producers.

This would be done through complicated financial mechanisms that would make State government owe the Permanent Fund Corp. the $775 million, instead of owing it to the oil and gas companies or banks that have been waiting for their payments.

Examples how this would work were included in Richards’ slide deck that he presented to the board last week.

They are, to be plain, story problems from hell:

Example 1:

Bank 1 lent 85 percent of $120 million credits in 2015, with a first position in 2016 credits and second position in field assets. So bank only owed 65 percent of all credits due next September.

But operator challenged to pay interest between now and when credits presumed paid in Fall 2017.

Operator has residual right to 5 percent of 2015 and 100 percent of 2016 credit payment.

Another lender for field infrastructure has first position on field assets, and second position on credits.

A purchase of the 2015 credit assignments at 90 percent par makes bank whole and operator gets $.05 on dollar. Second lender happy because bankruptcy avoided.

Purchaser has little operator risk, assignee risk negligible, so this is primarily a State credit play.

Example 2:

Bank 2 lent 95 percent against $100 million in 2015 credits, also secured by field assets in producing field.

Bank 2 loan comes due this month; private equity commitments held up due to loan situation.

A 90 percent par purchase of credit assignments would not make Bank 2 whole, but Operator might very will [sic] work with the PE funding to make Bank 2 whole to access further financing for next project phase.

Purchaser has little oeprator risk, assignee risk negligable, so this is primarily a State credit play.

For those readers now suffering from math anxiety, it’s this simple:

If x is a government distressed tax credit making y companies suffer economically, and z is the quasi-governmental agency that would offer to buy up the tax credits for pennies on the dollar…then is it even legal?

Solve for zero and show your work.

Related story: Is this a naked grab for the Permanent Fund?