National Council of State Housing Boards Introduction to Housing Bonds National Council of State Housing Boards 2017 Educational and Development Workshop Denver, Colorado October 14, 2017 Patricia Schuett Peterson, Esq. 402-346-6000 Patti.Peterson@KutakRock.com
What is a Bond and Why Should I Care?
HFAs created for public purposes Single Family Programs First-time Homebuyers Affordable Rental Housing Low and moderate income families
Public Purposes State law Federal law HFA Board Policies
From Public Purposes to Programs
Understanding the Options HFA Funds State Monies Federal Resources Conventional Market Sales “Borrowed” Funds
Accessing Capital Capital Markets Bonds Private Placement Public Sale
Bond Issue (Simple fixed rate) $ Underwriter Bondholders 1B Bonds/Official Statement Bonds/Purchase Contract 1A $ $ Bond Payments Issuer Trust Indenture Trustee Mortgage/Financing Agreements $ Program/Project Mortgage Payments $
What Is A Bond? Written promise to repay money amount interest rate maturity early payoff (e.g. “redemption”) terms
What Is A Bond? Various forms General Obligation Moral Obligation Revenue (Conduit Revenue)
Bond Issuance Overview Financing a program or project Federal/state tax exemptions State & federal procedural requirements Structuring issues Documentation
Types of Bonds Serial Bonds Term Bonds Fixed Rate Floating (variable) Rate Bonds VRDO/Index
Types of Bonds Current Interest Zero Coupon Premium/Original Issue Discount (OID) Planned-Amortization Class (PAC)
Parties to a Bond Issue Issuer (HFA) Trustee Underwriter/Managers/Selling Group Financial or Municipal Advisor/Quantitative Consultant Rating Agencies (Moody’s, S&P, Fitch) Investors Counsel
Additional Parties Credit Enhancer Liquidity Provider Swap Provider (Counterparty) Investment Agreement Provider DTC
Basic Bond Documents Resolution/Trust Indenture Offering Documents Preliminary Official Statement Official Statement Bond Purchase Contract Continuing Disclosure Agreement
Basic Bond Documents Closing Documents Arbitrage Certificate Form 8038 – Post-Issuance Compliance Procedures Legal Opinions Rating Letters Comfort Letter
General Legal Considerations State Laws Issuer’s Organic Law “Open Meetings” Laws Real Estate Laws “Blue Sky” Laws
General Legal Considerations Federal Bankruptcy Laws Federal Securities Laws/SEC Rules Municipal Securities Rulemaking Board Internal Revenue Service Consumer Financial Protection Bureau
Federal Tax Rules Housing General Rules Public Approval Requirement Private Activity Volume Cap Registration Requirement Information Return – Form 8038 AMT/Non-AMT Arbitrage (Net Investment) Limits Rebate/Yield Reduction
Federal Tax Rules Housing Single Family Program Rules Owner-Occupied/Principal Residence First-Time Buyer (Exceptions) Purchase Price/Income Limits New Mortgage Restrictions on Assumptions Recapture Tax
Federal Tax Rules Housing Single Family Program Rules Targeted Area Requirement 42-Month Rule 10-Year Rule
Federal Tax Rules Housing Multifamily Program Rules Rental only Qualified project period Set-Asides 20% at 50% 40% at 60% Land and depreciable property Max Bond term – 120% of useful life of project Limited reimbursement
What Every Good Board Member Should Know (or ask) About Bonds and Bond Issues
General Board Process for Bond Issuance Parties to the Bond Issue Public Purpose for Bonds SEC Rules
Bond Specifics Fixed rate Variable rate Hedges/Liquidity Types of bonds Fixed rate Variable rate Hedges/Liquidity Source and Security Ratings on Bonds Costs of the Bond Issue
Don’t Be Shy matters regarding their participation HFA Staff UW/FA/MA-significant aspects of the structure UW-access to information to conduct “due diligence” Other Professionals matters regarding their participation aware of any circumstances of non-compliance with HFA’s procedures