Bank Loan vs Bond Issue Overview

Bank Loans vs. Bond Issues Bank-Qualified Debt -- Certain Tax-Exempt Debt Obligations, Known as “Bank-Qualified Obligations” are attractive investments for banks. Bank-qualified Obligations are: Issued by Local Government Units or Authorities that do not expect to issue more than $10,000,000 of tax-exempt debt in a calendar year. Are not Private Activity Bonds, other than Qualified 501©(3) Bonds.

Bank Loans vs. Bond Issues Banks that buy Non-Bank-Qualified Debt lose federal income tax interest cost deductibility for the interest expense on an amount of deposits corresponding to the amount of non-bank qualified debt purchased. For Bank-Qualified Debt, banks lose interest cost deductibility on an amount of deposits equal to 20% of the amount of the tax-exempt obligations owned.

Bank Loans vs. Bond Issues Advantages of Bank Loans to Tax-Exempt Borrowers Lower Upfront Costs Administrative Ease No SEC Disclosure compliance requirements Interest rates may be higher or lower depending on term, structure and market conditions

Bank Loans vs. Bond Issues Advantages of Bond Issues to Tax-Exempt Borrowers Often able to obtain longer term fixed interest rates Longer term interest rates are often lower than bank loan rates

Bank Loans vs. Bond Issues When Banks are most Competitive when compared to Bond Issues When Bank-Qualified Debt is being offered. In climbing interest rate environments. Generally, public market rates go up more quickly than bank rates. When banks are willing to commit to fixed interest rates of 10 years or longer. When banks are willing to cap variable interest rate exposure without substantial cost to borrower.