What can the proceeds for a bond issue be used to finance?
Bond issue proceeds are primarily used to finance fixed-asset expenditures. In some cases, some of the administrative fees and guaranty fees can be partially financed.
How long does it typically take for a guaranteed bond issue to get closed and funded?
There are many factors that impact how long it will take to issue a bond, but it normally takes between 45 and 90 days to close a bond issue once it is approved for a guaranty.
Can we still use a bond issue if we’re in a hurry to get the project funded?
It is possible to begin funding a project with an interim loan while the bond issuance process is active. In most cases the interim loan will need to fund a construction project to completion before being replaced with the bond issue. Tax-exempt bonds will need to have the issuer provide an Inducement Resolution to proceed with an interim loan.
What are the main benefits of using a bond issue to finance a project?
Guaranteed bond issues provide long-term, fixed-rate financing at below-market interest rates. Bond issues also are the only way to provide the possibility of a Payment-in-Lieu-of-Tax (PILOT) agreement, which can provide substantial property tax relief for the project.
What is a Payment-in-Lieu-of-Tax (PILOT) Agreement?
A PILOT Agreement is one of the main incentives that a local government can provide to help entice a company to expand or locate a major capital expenditure project in its area. The local government is provided the legislative authority to abate up to 65 percent of the normal property tax cost if the capital expenditure project is financed with an industrial revenue bond.
What is the length of time for a bond issue to be paid back?
The longest amortization period by law is 30 years, but the vast majority of bond issues are for a much shorter period of time. The assets being financed with the bond issue will help determine the length of the amortization period of the bonds. Equipment will be on a shorter amortization period, usually between 5-10 years; real property improvements can be financed for a longer period of time, usually between 10-20 years. Bond issues that finance both real and personal property will have a blended amortization based on the estimated useful life of the assets.
How does the guaranty fee benefit the borrower?
While the Guaranty Fee does provide assurances to the bond purchaser that they will receive timely payments of principal and interest on the bonds, the borrower receives the benefit of reaching out to bond investors on a nationwide basis. The investment-grade rating of the Bond Guaranty Program assures the borrower that it will receive extremely beneficial financing on terms and conditions that would only be available to the largest of companies in the absence of the guaranty.
Who is the best issuer of a bond issue?
Cities, counties, and the Arkansas Development Finance Authority (ADFA) can issue bonds. Although ADFA has issuance authority under different legislation from other issuers, one of the main benefits to an ADFA-issued bond is the pre-negotiation of professional services, which will reduce cost and time to get the bond issued.
Can a bond issue be used to refinance existing debt?
The Bond Guaranty policy requires a legal economic development project to be able to use a bond issue as the financing method. Refinancing can only be included if there is a critical credit underwriting issue that requires a refinance of existing debt.