“Helping Aboriginal Communities Build Their Own Futures on Their Own Terms”Accessing Capital Markets for First Nations’

Project Financing Needs

AFOA Canada National Conference 2015

February 2015

FIRST NATIONS FINANCE AUTHORITY

BUILDING A STRONG COMMUNITY

IBA’s, Revenue sharing Settlement Agreements Property Taxation

Band Office Infrastructure

Fuel Rebate Tobacco Rebate Business Revenue

Economic Development Visiting Professionals Tourism

Housing

Employment Market Housing Sustainable Growth

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WHERE CAN FIRST NATIONS GET THE “MONIES” FOR PROJECTS?

Grants?Banks?

Investors?

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FNFA’S MANDATE

To provide First Nations with access to these same Capital Markets opportunities that are available to other levels of government:

1. Short Term loans below bank prime2. Long Term loans repayable out to 30 years

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SHOULD A FIRST NATION BORROW?

After years of poor treatment from high-interest lenders, First Nations have developed an aversion to debt. Single year funding and short-term loans will only maintain the status quo.

First Nations are GOVERNMENTSand must be able to borrow for long-term projects and infrastructure at“preferred” rates against their general credit worthiness in the same way all other governments do.

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BANK LOANS AND FNFA LOANS: WHAT IS THE DIFFERENCE?

Banks Application process – application

fees No certainty on loan approval

(can be denied without explanation)

Interest rates float, start at prime plus

Loans terms set for only 5 years, then must be renewed

Collateral required, General Security Assignment over ALL First Nation revenues and assets

For-profit, recent profits by banks in the billions of dollars

FNFA Loan Access – every day of the year. No application fees Loan Assuredness – if revenues support

request the First Nation can access with confidence the amounts when wanted

Short Term Rates – floating like bank loans but always below bank prime

Long Term Rates – fixed rates available out to 30 years

No collateral Control over Community Priorities –

now in hands of Chief & Council Borrowing Members are the owners Not-for-profit

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WHY GET A “FIXED” RATE?

Governments fund major projects on the Bond Market with long-term FIXED rate loans to mitigate “Interest Rate Risk”

* Fixed Rates eliminate “Interest Rate Risk”

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ALL GOVERNMENTS IN CANADA ACCESS THE CAPITAL MARKETS, NOT BANKS

IssueNotional (million) Coupon Maturity Price Yield Spread

Bench mark Issue Date

Term (year)

Quebec 500 3.750% 1-Sep-24 104.9513.177

% 88.5 2.5'24 18-Jun-14 10

British Columbia 600 3.200%

18-Jun-44 92.578

3.607% 77.5 3.5'45 17-Jun-14 30

New Brunswick 300 3.800%

14-Aug-45 99.281

3.840% 101.0 3.5'45 16-Jun-14 30

CMB 5,000 1.950%15-Jun-

19 100.0951.930

% 32.0 1.75'19 13-Jun-14 5

Alberta 1,267.5 3.500% 1-Jun-31 100.4223.467

% 85.5 5.75'29 11-Jun-14 20

Ontario 1,000 3.450% 2-Jun-45 94.4603.754

% 92.5 3.5'45 6-Jun-14 30

Ontario 750 3.500% 2-Jun-24 102.7093.181

% 83.5 2.5'24 4-Jun-14 10

Ontario 1,250 2.100% 8-Sep-19 99.8162.137

% 47.5 1.75'19 2-Jun-14 5

EIB 700 2.125% 4-Feb-19 100.9291.915

% 47.1 1.25'18 30-May-14 5

Quebec 500 3.750% 1-Sep-24 105.3233.138

% 91.5 2.5'24 29-May-14 10

Saskatchewan 300 1.950% 1-Mar-19 100.8041.772

% 27.0 1.75'19 29-May-14 5

Saskatchewan 100 FRN 5-Jun-17 100.000 27-May-14 FRN

Ontario 600 3.450% 2-Jun-45 94.0903.775

% 92.5 3.5'45 27-May-14 30

Quebec 500 3.500% 1-Dec-45 93.4703.860

% 101.0 3.5'45 27-May-14 30

Debentures Issued 30 Day period:

Provinces - $14.8 BillionCMHC - $10.0 Billion Banks - $ 1.0 Billion

$25.8 Billion in 30 days!

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THE GLOBAL CREDIT CRISES (2008)-- A HISTORY --

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PEOPLE ASSUME A BANK’S MONIES COME FROM ITS VAULT – NOT TRUE.

CANADA’S BANK RULES

USA’S BANK RULES

EUROPE’S BANK RULES

MONEY IN THE VAULT

“LEVERAGING” VAULT MONEY THROUGH CAPITAL

MARKET LOANS

$1 $7:1

$1

$1

UP TO $28:1

UP TO$70:1

Canadian banks can lend out $7 for every $1 they have in their vault. The other $6 are borrowed by the banks from the Capital markets. FNFA gets its monies from these same Capital Markets. 10

CANADA VS. WORLD (IE. CANADA’S CAPITAL MARKETS ARE SOLID)

0100200300400500600700800

USA EUROPE ASIA CANADA USA EUROPE ASIA CANADA USA EUROPE ASIA CANADA

MARKET CAP OF FINANCIAL INSTITUTIONS ($BILLIONS)

2007(before crash)

Jan. 2009(after crash)

Jan. 2015

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$310 B100%

GREECE – “WE ARE SUPERIOR!”2009

GREECE

$50 B3.00%

$100 B3.25%

$150 B3.50%

$200 B3.75%

CAN’T BORROW ANYMORE!

2001

-- Unemployment = 26.7%

-- Debt is 2 times the value of all of Greece

-- May have to leave the European Union 2015

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PORSCHE CAR COMPANY LIKES THEM THOUGH

RESULT

“There are more Porsche Cayenne’s per capita in Greece than anywhere else in the world”

Average Porsche Cayenne price = $75,000Average salary in Greece = $37,000

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THE FNFA: WHAT IS IT?

Created under “First Nations Fiscal Management Act”

Not a Crown Corporation, AANDC or an Agent of Canada

Non-profit; 100% First Nations owned and governed

Board of Directors are all First Nation Chiefs/Councilors

Structured after very successful pooled borrowing models

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GOVERNANCE

The FNFA, governed by its First Nations members, is the first co-operative borrowing authority in the world for First Nations governments.

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FNFA BOARD 2014 - 2015

The FNFA welcomed a new board elected at the Annual General Meeting held on July 10th, 2014 in Westbank, BC

- Councillor Jody Wilson-Raybould – We Wai Kai Nation, BC (Chair)- Councillor Catherine Hall – Tzeachten, BC (Deputy Chair)- Chief Terry Paul – Membertou, NS - Councillor Veronica McGinnis – Osoyoos, BC- Councillor Patrick Courtois – Mashteuiatsh, QC- Councillor Barry Yellow Fly – Siksika, AB- Chief Warren Tabobondung – Wasauksing, ON- Councillor Katy Gottfriedson – Tk’emlúps te Secwépemc, BC- Councillor Barry Wilson – Fisher River, MB

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Regulates and streamlines the approval of property tax

and new local revenuesBuilds administrative

capacity through sample laws and accredited training

Reconciles First Nation government and taxpayer

interests

Assists First Nations in strengthening their local financial management

regimesProvides independent certification to support

borrowing from FNFA and for economic development

Provides access to qualifying First Nations to work co-

operatively in raising long-term capital at preferred

rates through the issuance of debentures

Also provides investment services to First Nations

First Nations Tax Commission

(FNTC)

First Nations Financial Board

(FMB)

First Nations Finance Authority

(FNFA)

FIRST NATIONS FISCAL MANAGEMENTACT (FNFMA) ENACTED APRIL 2006

Pension Plans, Life Insurance Co.’s, Mutual Funds, Large Corporations, etc…

(i.e. those organizations with cash to lend)

WHAT ARE THE CAPITAL MARKETS?

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Global Capital Markets

HOW GOVERNMENTS ACCESS THEGLOBAL CAPITAL MARKETS

FIR

ST

NAT

ION

SM

UN

ICIP

ALI

TIE

SP

RO

VIN

CE

S

LOANS:- Below bank prime- Long repayment

terms – you choose the term

- Fixed interest rates if desired to keep budgets healthy

First Nations Fiscal Mgm’t Act:

FNFA, FMB &FNTC

Municipal Act&

Ministry of Municipal

Affairs

Provincial Statutes

&Auditor General

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WHY DEVELOP A PATH TO THE CAPITALMARKETS?

AANDC

Capital Markets

BILLION

$

0

25

50

75

100

125

150

175

200

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

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CAPITAL MARKETS ACCESS IS CRITICAL

This Capital Markets access is critical in that each Chief & Council can focus on economic and capital planning with the confidence that FNFA will raise the financing.

This confidence arises due to FNFA’s established relationship with the Capital Markets under agreed rules that allow determination of each FNFA member’s borrowing capacity (calculated from each member’s revenue streams).

FNFA then taps the Capital Markets to access each member’s calculated borrowing capacity when the Chief & Council request such financing.

Economic and capital planning then transitions to certainty, not an idea.

THIS IS WHERE THE BANKS GET THEIR LOAN MONIES

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HOW CAN FNFA ACCESS CAPITAL?

On June 19, 2014 Moody’s re-confirmed the FNFA debenture at A3 (Investment Grade).

Rating ActionOn Dec. 18, 2014, Standard & Poor's Ratings Services assigned its 'A-'long-term issuer credit rating to not-for-profit lender First Nations Finance Authority (FNFA). The outlook is stable.

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HOW DOES FNFA’S CREDIT RATING COMPARE?

Potential recovery values are lowC

Low credit riskA

Moderate credit riskBaa

Questionable credit qualityBa

Generally poor credit qualityB

Extremely poor credit qualityCaa

Very low credit riskAa

Highly speculativeCa

Smallest degree of riskAaa

FNFA *investment grade

Canada, USA, Germany

Croatia, Morocco, Hungary

Iceland, Ireland, Italy, Russia

Ukraine, Argentina, Greece

England, Holland, New Zealand

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FNFA ISSUES INAUGURAL DEBENTURE

MEDIA ADVISORY | FOR IMMEDIATE RELEASE JUNE 19th, 2014 WESTBANK, BRITISH COLUMBIA The First Nations Finance Authority issues Inaugural Debenture History was made today, as the First Nations Finance Authority (FNFA) issued its inaugural debenture in the amount of $90 million CAD. The FNFA pools the borrowing requests of its member First Nations into one debenture. The capital raised by this inaugural debenture will be used by 14 First Nations to build and make improvements to roads, water and waste systems, power/lighting, public buildings and other local infrastructure as well as providing economic opportunities both on and off reserve.

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FNFA DEBENTURE #1 – BUYERS LIST

Alberta5%

British Columbia25%

Ontario8%

Quebec37%

US14%

Private Individuals11%

Alberta

British Columbia

Ontario

Quebec

US

Private Individuals

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Debenture proceeds were used for community infrastructure, infrastructure, community housing, economic ventures backed by provincial contracts, sports field development and social projects.

New Loans are financing 4 solar projects, community housing, new school, run-of-river projects, and community infrastructure.

APPENDIX “A”DEBENTURE #1 PROCEEDS USED

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WHAT PROJECTS DOES FNFALEND FOR?

FNFA Lends for Projects that are:- Economic Development - Social Development- Community owned housing- Equity involvement (power projects, pipelines, etc…) - Land purchases - Infrastructure- Vehicles and equipment

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THE FNFA MODEL:FNFA CALCULATES EACH COMMUNITY’S

“BORROWING CAPACITY” BASED UPON THEIR REVENUES (I.E. NO OVER-BORROWING)

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ELIGIBLE REVENUE STREAMSTO SUPPORT A FNFA LOAN

The FNFA allows First Nations to support loans with their choice of revenue sources:

Other Revenues:Royalties, Business revenues, Contract revenues, and Transfers from other levels of Government, IPP revenues.

Property Tax Revenues:First Nations work with the FNTC. Once completion of the FNTC process has occurred, then work with the FNFA.

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HOW MUCH CAN A FIRST NATION BORROW FROM THE FNFA?

A First Nation can request FNFA loans to as much as their revenue streams can support:

20 years 25 years 30 yearsFederal/Provincial Transfer 10.35 11.37 12.26Municipal Transfers 9.79 10.76 11.60Independent Power Projects (IPP’s)

10.18 11.19 12.06

Provincial Gaming Revenues 7.95 8.74 9.42Land Benefit Agreement 5.66 6.21 6.70Contracts & Leases 7.27 7.99 8.61Band Business 7.27 7.99 8.61

The “Borrowing Factors” for each $1.00 of revenue are:

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SHORT TERM RATE AND LONG TERMFIXED RATE LOANS

Short Term Rate – interim loans for construction or smaller projects and for financing in between debenture issues. Current Interim Rate = 2.6% Long Term Rates – fixed rates available out to

30 years. Current “fixed” interest rate loan from FNFA 10 years = 2.85%; 20 years = 3.45%

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HOW DOES THE FNFA PROTECT ITS LOANS?

The FNFA does not take collateral. This leaves a First Nation’s cash, assets, investments, and other items unencumbered.

SAFEGUARDS REQUIREDBY THE CAPITAL MARKETS

1. Financial Management Board (FMB): Certification Process-- FMB’s vetting process is a pre-requisite to any FNFA loans

2. Revenue Leverage Factors Set by Capital Markets:-- Each revenue stream has a loan leverage factor that cannot be exceeded

3. FNFA’s reserve funds:-- Debt Reserve Fund (DRF) = 5% of loan requests withheld

-- One DRF for Property Tax; one DRF for Other Revenues

-- Credit Enhancement Fund (CEF) = $10 Million supports both DRF’s4. Borrowing Members approve other Borrowing Member’s loan

requests.5. Trust Account System ensures loan repayments.

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Revenue Stream chosen is

$250,000 annually

$250,000 into the SRTA

Account

$61,912 FNFA loan payment

$188,088 to the First Nation’s bank

account

First Nation uses one of its revenue streams to secure the loan. (The more revenue streams a First Nation uses the more it can borrow.)

Revenue stream is deposited directly into the SRTA account by the Payor or from a band’s business.

SECOND: Balance in SRTA paid to First Nation

EXAMPLE: FNFA LENDS $1,000,000 TO AFIRST NATION REPAYABLE OVER 25 YEARS

First Nation controls spending of these monies.

FIRST: FNFA paid its loan amount.

FNFA does not take collateral. The above process is cost-free to the First Nation and provides the “comfort” needed by the Capital Markets.

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WHO ARE FNFA’S MEMBERS?

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WHO ARE THE FNFA MEMBERS?

1. Cowichan, BC 2. Douglas, BC3. Fisher River Cree, MB4. Kanaka Bar, BC5. Kitselas, BC6. Kwadacha, BC7. Lax Kw’alaams, BC8. Lower Kootenay, BC9. Malahat, BC10. Mashteuiatsh, QC11. Mohawks of the Bay of Quinte, ON12. Membertou, NS13. Metlakatla, BC

38 Approved Borrowing Members:

14. Moricetown, BC15. Mount Currie, BC16. Nadleh Whut’en, BC17. Nipissing, ON18. Osoyoos, BC19. Penticton, BC20. Shxwhá:y Village, BC21. Siksika, AB22. Skeetchestn, BC23. Sliammon, BC24. Songhees, BC25. Splatsin, BC26. Squiala, BC

27. St. Mary’s, BC28. St. Theresa Point, MB29. Sts’ailes, BC30. Taku River Tlingit, BC31. Tk’emlups te Secwepmc, BC32. Tsawout, BC33. Tsleil-Waututh, BC34. Tzeachten, BC35. Wasauksing, ON36. We Wai Kai, BC37. Wet’suwet’en, BC38. Williams Lake, BC

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ACCESS TO CAPITAL -- BORROWING MEMBER POTENTIAL

FNFA Member’s Borrowing Capacity Current 38 Borrowing Members: = $775,000,000 (1)

Additional borrowing members will also increase overall borrowing capacity.Doubling the borrowing membership could result in a borrowing capacity of

$1.5 Billion!

Moody’s and S&P noted in their rating report:

What Could Change the FNFA’s Credit Rating - Up“Material improvement in the credit quality, size and diversity of the participant pool along with an increase in liquidity could put upward pressure on the rating.”

(1) Based on the eligible revenue stream for the current 38 FNFA Borrowing Members

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PROPOSED CHANGES TO FNFMASTREAMLINING ACCESS, IMPROVING EFFICIENCIES, AND

ENHANCING INVESTOR CONFIDENCE

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FNFMA - WHY AMEND?

Amendments to the Act were always contemplated. Recognizing the evolution of the environment in which the regime operates.

Making changes to the First Nations Fiscal Management Act will help: accelerate and streamline participation in the regime; reduce the administrative burden on participating First Nations and other stakeholders; and, strengthen the confidence of capital markets and investors.

It is estimated that these administrative improvements will more than double the number of First Nations certified by the Financial Management Board to 100 over the next five years.

As the number of First Nations borrowing under the regime grows, the resulting diversification of revenue streams will further improve the First Nations Finance Authority’s investment grade credit rating. It is projected that in five years Finance Authority borrowing members will have a total borrowing capacity of more than $1.8 billion.

None of the proposed changes would affect the Act’s rigorous accountability, risk management or investment frameworks.

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WHO CAN BECOME A MEMBER OF THE FNFA?

Borrowing Membership is voluntary and is open to all First Nations from “coast – to coast – to coast”

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St Theresa Point is located in one of the most inaccessible areas of Manitoba.

Food, fuel, materials and supplies must be flown in or brought in during the short winter-road season.

In the summer months, travellers must use a “Water Taxi” to get to the shared airport. Groceries are generally flown in as well adding to cost.

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The winter roads are treacherous, claiming victims each year.

Even professional “Ice Road Truckers”

If you get stranded, help can be hundreds of kilometers away. With very little cellular service.

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Although improvements are occurring, many households do not have access to running water.

St Theresa Point has all the same challenges found in other isolated First Nation communities.

They do the best they can.

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With 633 First Nations applying for funds, access to capital projects funding from traditional sources may be difficult for future projects.

Having recently received capital project funding, STP may be perceived as “low priority” for future projects.

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Fortunately, they have recently achieved Borrowing Membership with the First Nations Finance Authority.

If St Theresa Point First Nations, with all the challenges of a northern, isolated community can achieve this goal, so can your First Nation!

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TO CALCULATE YOUR COMMUNITY’S BORROWING POWER

Use FNFA’s website: www.fnfa.ca

Once in the website choose “Calculators” tab at the top of the page

Once “Calculators” has been chosen use: “Other Rev Calculator”

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CONTACT INFORMATION

First Nations Finance Authority

PH: 250-768-5253

Ernie Daniels, President/CEO

Visit our website:www.fnfa.ca

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