SB-1175, As Passed Senate, March 12, 2008

SUBSTITUTE FOR

SENATE BILL NO. 1175

A bill to amend 1984 PA 270, entitled

"Michigan strategic fund act,"

by amending section 88d (MCL 125.2088d), as added by 2005 PA 225.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 88d. (1) The fund shall create and operate a loan

enhancement program.

(2) As a separate and distinct part of the loan enhancement

program, the fund may create a loan guarantee program that does all

of the following:

(a) Provide a loan guarantee mechanism to financial

institutions located in this state that provide commercial loans to

qualified businesses, public authorities, and local units of

government.

(b) Ensures that participating financial institutions do not

refinance prior debt.

loan guarantee under this section if it has a documented growth

opportunity. As used in this subdivision, "documented growth

opportunity" means a plant expansion, capital equipment investment,

acquisition of intellectual property or technology, or the hiring

of new employees to meet or satisfy a new business opportunity.

(d) Provide that a qualified business that engages primarily

in retail sales is not eligible for a loan guarantee under this

chapter unless the fund board makes a specific finding that the

loan guarantee supports a new concept that has significant growth

potential.

(e) Provide repayment provisions for a loan or a guarantee

given to a qualified business that leaves Michigan within 3 years

of the provision of the loan or guarantee or otherwise breaches the

terms of an agreement with the fund.

(3) As a separate and distinct part of the loan enhancement

program, the fund shall reestablish the small business capital

access program that was previously operated by the fund for small

businesses in a manner similar to how that program was operated

before January 1, 2002. The small business capital access program

shall operate on a market-driven basis and provide for premium

payments by borrowers into a special reserve fund. The small

business capital access program established by the board shall

prohibit an officer, director, principal shareholder of a

participating financial institution, or his or her immediate family

members from receiving a small business capital access program loan

from the financial institution. A loan under the small business

capital access program may be issued to an eligible production

company or film and digital media private equity fund even if the

eligible production company or film and digital media private

equity fund is not a small business. A loan under the small

business capital access program shall provide that the proceeds of

a loan may only be used for a business purpose within this state

and may not be used for any of the following:

(a) The construction or purchase of residential housing.

(b) To finance passive real estate ownership.

institution that is not part of the small business capital access

program.

(4) As a separate and distinct part of the loan enhancement

program, the fund shall establish a Michigan film and digital media

investment loan program to invest in loans from the investment fund

to eligible production companies or film and digital media private

equity funds. The fund board shall make investments under this

subsection only upon approval of the chief compliance officer and

the Michigan film office after a review by the investment advisory

committee. If an investment is made under this section, not more

than $15,000,000.00 may be loaned to any 1 eligible production

company or film and digital media private equity fund for any 1

qualified production. The fund board may make an investment in a

qualified production if all of the following are satisfied:

(a) The production is filmed wholly or substantially in this

state.

(b) The eligible production company or the film and digital

media private equity fund has shown to the satisfaction of the

Michigan film office that a distribution contract or plan is in

place with a reputable distribution company.

private equity fund agrees that, while filming in this state, a

majority of the below the line crew for the qualified production

will be residents of this state.

(d) The eligible production company or film and digital media

private equity fund posts a completion bond approved by the

Michigan film office and has obtained no less than 1/3 of the

estimated total production costs from other sources as approved by

the chief compliance officer and the Michigan film office or has

obtained a full, unconditional, and irrevocable guarantee of the

repayment of the amount invested by the fund in favor of the

investment fund that satisfies 1 or more of the following:

(i) The guarantee is from an entity that has a credit rating of

not less than BAA or BBB from a national rating agency.

(ii) The guarantee is from a substantial subsidiary of an

entity that has a credit rating of not less than BAA or BBB from a

national rating agency.

(iii) The eligible production company or the film and digital

media private equity fund provides a full, unconditional letter of

credit from a bank with a credit rating of not less than A from a

national rating agency.

(iv) The guarantee is from a substantial and solvent entity as

determined by the investment advisory committee.

(e) The fund board may make a loan under this subsection at a

market rate of interest for a qualified production of up to 80% of

expected and estimated tax credits available to the eligible

production company or film and digital media private equity fund

under sections 455 to 459 of the Michigan business tax act, 2007 PA

36, MCL 208.1455 to 208.1459, if the eligible production company or

the film and digital media private equity fund agrees to name the

fund as its agent for the purpose of filing for the tax credits

should the eligible production company not apply for the tax

credits. The Michigan film office and the state treasurer shall

determine the estimated amount of tax credits for purposes of this

subsection. The fund board shall approve guidelines for the

initiation of a loan and the terms of the loan under this

subsection.

(f) A loan under this subsection may be converted to an equity

investment by the fund board with the approval of the chief

compliance officer and the Michigan film office.

(g) An eligible production company or film and digital media

production company that receives a loan under this subsection is

not also eligible for a loan for the same qualified production

under subsection (5).

(h) Fifty percent of any earnings on a loan or investment

under this subsection shall be deposited in the investment fund and

the remainder of the earnings shall be deposited in the Michigan

film promotion fund created under chapter 2A. One hundred percent

of principal repaid under this subsection shall be deposited in the

investment fund upon repayment.

(5) As a separate and distinct part of the loan enhancement

program, the fund shall establish the choose Michigan film and

digital media loan fund to invest in loans from the investment fund

to eligible production companies or film and digital media private

equity funds eligible for a tax credit under the Michigan economic

growth authority act, 1995 PA 24, MCL 207.801 to 207.810, or

sections 455 to 459 of the Michigan business tax act, 2007 PA 36,

MCL 208.1455 to 208.1459. The fund board shall make investments

under this subsection only upon approval of the chief compliance

officer and the Michigan film office. A loan issued under this

subsection is subject to all of the following requirements:

(a) A loan shall be provided at an interest rate of not less

than 1%.

(b) The minimum amount of a loan under this subsection is

$500,000.00.

years, including up to 3 years of deferred principal payments to

align principal payments with receipt of primary incentives, as

determined by the fund board.

(d) The value of the loan may not exceed the value of the

primary incentive that the eligible production company or film and

digital media private equity fund is eligible to receive over 7

years, as discounted by the fund board. A loan authorized by the

fund board may provide for a loan amount equal to a portion or all

of the discounted value of the primary incentives, as discounted by

the fund board.

(e) The eligible production company or film and digital media

private equity fund is responsible for repayment of the loan

regardless of actual primary incentive amounts received.

(f) The eligible production company or film and digital media

private equity fund is responsible for loan preparation and closing

costs.

(g) An eligible production company or film and digital media

private equity fund that receives a loan under this subsection is

not also eligible for a loan for the same qualified production

under subsection (4).

(h) The eligible production company or film and digital media

private equity fund also obtains an additional loan from an

accredited financial institution or other approved lending market.

(i) The loan shall be issued consistent with guidelines for

the initiation of a loan and the terms of the loan under this

subsection approved by the fund board.

(j) Fifty percent of any earnings on a loan under this

subsection shall be deposited in the investment fund and the

remainder of the earnings shall be deposited in the Michigan film

promotion fund created under chapter 2A. One hundred percent of

principal repaid under this subsection shall be deposited in the

investment fund upon repayment.

(6) As used in this section:

(a) "Below the line crew" means that term as defined under

section 459 of the Michigan business tax act, 2007 PA 36, MCL

208.1459.

(b) "Eligible production company" means that term as defined

under section 455 of the Michigan business tax act, 2007 PA 36, MCL

208.1455.

limited partnership, limited liability company, or corporation

organized and operating in the United States that satisfies all of

the following:

(i) Has as its primary business activity the investment of

funds in return for equity in qualified productions.

(ii) Holds out the prospect for capital appreciation from the

investments.

(iii) Accepts investments only from accredited investors as that

term is defined in section 2 of the federal securities act of 1963

and rules promulgated under that act.

(d) "Investment advisory committee" means the committee

created within the department under section 91 of the executive

organization act of 1965, 1965 PA 380, MCL 16.191.

(e) "Michigan film office" means the office created under

chapter 2A.

(f) "Primary incentive" means a tax credit an eligible

production company is eligible to receive under the Michigan

economic growth authority act, 1995 PA 24, MCL 207.801 to 207.810,

or under sections 455 to 459 of the Michigan business tax act, 2007

PA 36, MCL 208.1455 to 208.1459.

(g) "Qualified production" means that term as defined under

section 455 of the Michigan business tax act, 2007 PA 36, MCL

208.1455.