1. BONDS 101
Daniel M. McRae, Partner Seyfarth Shaw LLP Peachtree St., N.E., Ste Atlanta, GA fax
May 2015

2. GETTING STARTED
Why bonds?
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3. BEST WAY TO BORROW MONEY
The interest on bonds issued by a development authority (industrial development revenue bonds, or IDBs) is either federally taxable or federally tax-exempt.
Federally tax-exempt bonds are more desirable.
Advantage of tax-exempt financing
Lower interest rate
Longer term
Greater marketability
More availability of interest-only capitalized interest
Smaller bond issues more do-able
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4. WHY DON'T WE DO THAT ALL THE TIME?
THE IRS MAKES IT HARD
WHY DON'T WE DO THAT ALL THE TIME?
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5. TAX-EXEMPT BONDS
INTEREST ON PRIVATE ACTIVITY BONDS NOT FEDERALLY TAX-EXEMPT UNLESS THERE IS AN "EXEMPTION"
EXEMPTIONS ARE HARD TO FIND
COMPLIANCE WITH OTHER TAX RULES REQUIRED
HERE ARE A FEW
“small issue” manufacturing bonds
Qualified 501(c)(3) bonds for federally recognized nonprofits
Exempt facility bonds
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6. TAXABLE BONDS Most development authority bonds are federally "taxable"
Bonds for title for incentives
But taxable bonds can be a good financing tool
Example- "floaters" with community bank letter of credit confirmed by FHLB
"taxable floaters" if manufacturing bonds
Affordable housing bonds can be tax-exempt
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7. SHOW ME A PICTURE WHAT A BOND DEAL LOOKS LIKE TO AN UNDERWRITER
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8. A PUBLIC BOND DEAL USUALLY NO FA
THIS IS YOU- THE DEVELOPMENT AUTHORITY
THIS IS THE UNDERWRITER
THIS IS A LEASE, NOT A LOAN, IF THERE IS ABATEMENT
THIS IS A BANK THAT PROVIDES AN LOC
SOURCE- STERN BROTHERS. COMMENTARY ADDED.
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9. PRIVATE IS FASTER, CHEAPER
No- Underwriter, LOC Bank (bank buys bond directly), FA, rating agency, trustee, lawyers for them
SOURCE- STERN BROTHERS. COMMENTARY ADDED.
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10. WHAT'S TRENDING
Private placements- Larger community banks are now interested in development authority bonds
Especially if they are tax-exempt
Longer terms
10-15 years
Fixed rate or subject to adjustment
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11. HOW FAST IS FAST?
BOARD MEMBERS MEET TWICE- TO ADOPT THE INDUCEMENT RESOLUTION, AND TO ADOPT THE BOND RESOLUTION
APPLICATION SHOULD COME BEFORE INDUCEMENT RESOLUTION
DON'T FORGET THE VALIDATION
ALLOCATION USUALLY BUILT INTO SCHEDULE. PRIVATE PLACEMENT USUALLY DAYS
SOURCE- STERN BROTHERS. COMMENTARY ADDED.
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12. WHAT KIND OF BONDS ARE THESE?
CAN YOU SPEAK "BOND"?
WHAT KIND OF BONDS ARE THESE?
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13. DO YOU SPEAK “BOND”? AND CAN YOUR DEVELOPMENT AUTHORITY ISSUE BONDS LIKE THESE?
THIS …
IS THE OPPOSITE OF…THIS
REVENUE BOND
Yes. Only revenue and other collateral from the private company is at risk. No repayment obligation on the part of the development authority, the city, the county or the State. Caveat: Some Constitutional development authorities.
GENERAL OBLIGATION BOND
No (with contract revenue bonds, the IGA is pledged)
"BANK QUALIFIED”
Except for some situations involving qualified 501(c)(3) bonds, most development authority bonds are not “bank qualified”, or “BQ” (doesn’t mean banks can’t buy them; means banks don’t get a carrying charge deduction)
NOT “BANK QUALIFIED”
Yes
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14. DO YOU SPEAK “BOND”? AND CAN YOUR DEVELOPMENT AUTHORITY ISSUE BONDS LIKE THESE?
THIS …
IS THE OPPOSITE OF…THIS
FLOATING RATE
Yes (letter of credit normally required)
FIXED RATE
Yes
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15. FLOATING RATE SOURCE- STERN BROTHERS. COMMENTARY ADDED.
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16. FIXED RATE SOURCE- STERN BROTHERS. COMMENTARY ADDED.
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17. "THESE BONDS ARE TRIPLE A!"
NO THEY'RE NOT!
"THESE BONDS ARE TRIPLE A!"
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18. WHAT DOES “INVESTMENT GRADE” MEAN?
HINT- IT’S GOT NOTHING TO DO WITH DUN & BRADSTREET.
YOUR PROSPECT IS ALMOST CERTAINLY NOT “AAA”. THERE ARE ONLY THREE TRIPLE A COMPANIES IN THE US TODAY- Microsoft Corp., Johnson & Johnson and Exxon Mobil Corp.
IN THE TERMINOLOGY USED BY S&P AND FITCH, FOR EXAMPLE, INVESTMENT GRADE IS A RATING OF BBB- THROUGH AAA
(MOODY’S IS THE OTHER MAJOR RATING AGENCY, AND HAS ITS OWN TERMINOLOGY)
IF THE BONDS ARE SECURED BY A BANK LETTER OF CREDIT, THE BANK’S LETTERS OF CREDIT MUST BE RATED INVESTMENT GRADE
ON THE STRENGTH OF THE LETTER OF CREDIT, THE RATING AGENCY WILL ASSIGN A RATING TO THE BONDS
(THE SAME RATING AS THE LETTER OF CREDIT)
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19. WHERE DO I GO FROM HERE?
CONCLUSION
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20. CONCLUSION HOW TO FINANCE THE PROJECT?
INDUSTRIAL DEVELOPMENT REVENUE BONDS USED TO BE THE ONLY ANSWER
NOW, THERE IS NO ONE ANSWER
BUT WHEN ONE DOOR CLOSES …
OTHER DOORS OPEN
GOOD LUCK WITH ALL YOUR NEW BOND OPPORTUNITIES!
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21. CHECK THIS OUT
MORE INFORMATION
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22. QUESTIONS?
If you have any questions or comments on this presentation, please do not hesitate to let me know. Daniel M. McRae, Partner Seyfarth Shaw LLP 1075 Peachtree Street, N.E. Suite 2500 Atlanta, GA fax
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23. REFERENCES
THIS PRESENTATION AND OTHER REFERENCES CAN BE DOWNLOADED AS FOLLOWS:
November P3 for D-B: “How the Public Sector and Design-Builders Can Survive and Thrive in the P3 World”
August “P3- Understanding Public/Private Partnerships”
May “P3- Public/Private Partnerships Done Right”
November "In-Sourcing Capital: EB-5 Loans and Equity; NMTC Tax Credit Equity; and Non- Recourse Project Finance Bonds“
August “Bonds 101”
June "TIFs and TADs in Tough Times“; TIFs and TADs Questions and Answers
January “Introduction to Tax-Exempt Bonds”
August 2010 – "Bonds For Title“ at
February 2013 – Quick Takes: “Projects – Money Comes Knocking”
June 2011 – Quick Takes: “Easy Equity – the NMTC and EB-5 Programs”
January 2011 – Quick Takes: “After ARRA – What Bonds Can We Use Now to Finance Projects?” at
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24. ADVICE
This presentation is a quick-reference guide for elected and appointed officials and their staffs, company executives and managers, economic developers, participants in the real estate and financial industries, and their advisors. The information in this presentation is general in nature. Various points which could be important in a particular case have been condensed or omitted in the interest of readability. Specific professional advice should be obtained before this information is applied to any particular case. Any tax information or written tax advice contained herein is not intended to be and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer. (The foregoing legend has been affixed pursuant to U.S. Treasury Regulations governing tax practice.)
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