Bond Financing Informationrn
u
u
E
INDUSTRIAL DEVELOPMENT REVENUE
BOND FINANCING
IN THE STATE OF FLORIDA
i
rlL
•
INDEX
Introduction
® Advantages of Industrial Development
Revenue Bond Financing to a City or County
Advantages of Industrial Development
Revenue Bond Financing to a Company
• Issuance Procedures
Income Tax Regulations
Example Time Schedule
® Chapter 159 / Part II and III
Florida Industrial Develoment
Financing Act ...............................
Chapter 80-287, Florida Statutes
40 1980 Legislation Expanding Use of
Industrial Development Revenue Bonds ...............................
Internal Revenue Service Regulations
Relating to Industrial Development
Revenue Bonds
® Memorandum Interpreting the Revenue
Act of 1978 as it pertains to changes
in the Industrial Development
Revenue Bond Regulations ...............................
• Memorandum Interpreting the Crude Oil
Windfall Profit Tax Act of 1980 as it
pertains to changes in Industrial Development
Revenue Bond Regulations ...............................
Sample Industrial Development Revenue
Bond Application Form ...............................
:7
:7
Appendix A
Appendix B
Appendix C
Appendix D
Appendix E
App odix F
L
n
INTRODUCTION
INDUSTRIAL DEVELOPMENT REVENUE
BOND FINANCING
IN THE STATE OF FLORIDA
Industrial development and pollution control revenue bonds are tax-free securi-
ties issued by municipalities or municipal agencies (e.g. Industrial Development
Authorities) for the purpose of providing funds for the purchase of land, and the
constructing and equipping of manufacturing and pollution control facilities for
private firms desirous of relocating to a community or expanding present facili-
ties. The city, county or agency acts as a conduit for the financing by issuing
tax-free bonds for development or expansion of the facility and entering into a
Loan Agreement with the private firm. It is important to note that the bonds are
secured solely by revenues derived from the Loan Agreement and do not constitute a
'® debt of the city, county, or state, and neither the city, county nor any political
subdivision thereof, shall be liable thereon, nor in any event shall such bonds or
obligations be payable out of any funds or properties other than the revenues
derived from the Loan Agreement.
• In 1980 the Florida Legislature passed House Bill 1572 (see Appendix B herein)
which substantially expanded the scope of Industrial Development Revenue Bond
Financing in Florida. In addition to the traditional manufacturing facilities,
commercial and Health Care Facilities are now eligible for this advantageous form
of financing.
0 ADVANTAGES OF INDUSTRIAL DEVELOPMENT REVENUE BOND FINANCING TO A CITY OR COUNTY
1. Ability to attract new industry to community by offering attractive lower cost
tax-exempt financing for the development and construction of new industrial
plants.
® 2. Ability to assist existing industrial firms in their expansion plans by offer-
ing low -interest cost financing.
•
3. Expand employment opportunities through No. 1 and No. 2 listed above.
4. Broaden tax base by encouraging expansion of existing plants and atti,-cting
new industry to the community.
5. Ability to compete in attracting industry with other communities offering
tax-exempt financing.
ADVANTAGES OF INDUSTRIAL DEVELOPMENT REVENUE BOND FINANCING TO A COMPANY
1. 100% Financing: The ability to obtain "100% financing" including the cost of
site acquisition, construction of buildings, purchase and installation of
machinery and equipment, interest during construction and the expenses of the
bond issuance.
® 2. Lower Monthly Payments: Since the monthly Loan payments are used to pay debt
service on a tax-exempt financing, the payments 'will be substantially less
than similar payments on conventional financing.
0
•
3. Attractive Tax Credit and Depreciation Deductions: Investment tax credit and
deductions for interest and depreciation accrue to the company using the
facility just as if it had obtained financing through a conventional taxable
• financing.
4. Availability of Funds: With active markets for tax-exempt bonds within the
banking community, institutional investors and the public sector, industrial
revenue financing offers new and substantially larger sources of funds.
5. No Need for Interim Financings: this form of financing, which is generally
• closed prior to the start of construction, requires no subsequent conversion
to permanent financing.
ISSUANCE PROCEDURES
A number of steps are required to implement and complete an industrial devel-
opment revenue bond financing. The following is a brief listing and elaboration of
the steps required to undertake this type of financing:
1. Retaining the bond underwriter and bond counsel. it is an important first
step to retain you bond underwriter andTom counsel in an industrial
• development revenue bond financing. These professionals will advise you
on the proper procedures required to effect the issuance of the tax free
bonds. Generally, both the bond underwriter and bond counsel will work on
a contingency basis, being paid only upon the sale and actual delivery of
the bonds.
• 2. Execution of a letter of inducement by the issuing municipality or
agency. Prior to entering into any binding commitments with respect to
t e proposed project a letter of inducement should first be obtained from
the issuing body. This letter simply states that the issuing body is
willing to issue its industrial development revenue bonds in order to
induce the company to locate or expand within its geographical area.
• 3. Drafting of the basic financing documents by bond counsel.
a. Loan Agreement. This agreement provides that the company will
acquire, construct and equip the project to its specifications. It
provides for the obligation by the Company to make loan p—ments
• sufficient to retire the bonds. This document also contai- s the
business covenants to which the company would agree to with respect to
the bonds. The duration of the Loan Agreement would be equal to the
period required to pay off the bond issue.
b. Trust Indenture. Under the Trust Indenture which is entered into
• between the issuing body and a corporate trustee such as a commercial
bank the issuing body assigns its interest in the Loan Agreement to
the Trustee to secure the bond issue. The Trust Indenture sets forth
the basic structure of the bond issue and provides for the creation of
a construction fund where bond proceeds would be deposited. The
Trustee would then pay out construction draw downs as required. The
• interest earnings on the construction fund would accrue to the com-
pany. The Trustee normally serves as paying agent for the bonds and
the company would make its payments of principal and interest directly
to the -trustee rather than to the issuing body. An initial acceptance
0
•
fee in addition to an annual fee will normally be required by the
trustee to function under the Indenture.
c. Bond Resolution. The bond resolution of the City or County basically
• provides for the issuance of the bonds and for the adoption of the
Loan Agreement and Trust Indenture.
d. Parent Company Guarantee. In cases where a subsidiary would undertake
the financing and operation of the project, a parent company guarantee
may be required in order to secure the bonds. This guarantee would be
• assigned by the issuing body to the Trustee and would provide that the
Trustee could look to the parent company in the event of a short fall
of funds required to pay off the bonds.
Several drafting sessions will be required in order to reach agreement on the
• basic documents and the structure of the financing. The normal participants in
these sessions would be the underwriter, a representative of the company and its
counsel and bond counsel.
4. Validation proceedings_ inCircuitCourt. Florida law provides that bond
issues may be validated by judgment of the Circuit Court. This procedure
• is optional but is normally undertaken. Bond Counsel or counsel for the
issuing body would file for validation once all the basic documents have
been approved by the issuing body. There is a 21 day period prior to the
validation hearing during which notice of the hearing must be published.
Once the bonds have been validated there is a 30 day appeal period
subsequent to which marketing of the bonds would normally begin.
• 5. Sale of the Bonds. Once the bonds have been validated and the offering
statement prepared the underwriter would proceed to market the bonds. If
the bonds will be offered publicly, there is normally a week's period
required to sell the bonds. If there is a private placement then the
underwriter would negotiate the placement of bonds with a small number of
• institutional purchasers. The underwriter would then submit a purchase
proposal to the company outlining the bond discount and interest rate to
be paid on the bonds.
6. Closing and Delivery of the Bonds. At the closing of the bond issue the
underwriter willpay ay the ne and proceeds plus accrued interest to the
• Trustee who will then authenticate the bonds and deliver them to the
underwriter.
INCOME TAX EXEMPTION REGULATIONS
The Internal Revenue Service regulations regarding the issuance of industrial
• development revenue bonds provide for two basic options for a company to finance an
industrial project. These are the $1,000,000 exemption and the $10,000,000
exemption.
$1,000,000 Exemption: The $1,000,000 exemption provides that the total bonds
outstanding in any one issuing body's jurisdiction shall not exceed
• $1,000,000. Under this option, the company may incur capital expenditures
within the same issuing body's jurisdiction with no limitation and chance of
losing the tax-exempt feature of these bonds.
$10,000,000 Exemption: Under this option, a company may issue up to
1 of Sonds in one or more issues, however, in computing the
$10,000,000, all expenditures of a capital nature for or by the principal user
within the same issuer's jurisdiction (in the case of a county outside the
incorporated area) for a period of three years prior to the issuance of the
bonds and three years after the issuance of the bonds together with the par
amount of bonds outstanding must not exceed $10,000,000. A violation of this
rule would remove the tax-free treatment of the interest income on these
bonds.
The regulations under either option remove the tax-free nature of the interest
income on the bonds to substantial users and related persons as long as they are
owners of the bonds. Exempt from computation of the $1,000,000 and $10,000,000
options are certain classes of public facilities such as sports facilities, conven-
tion or trade show facilities, airports, docks, wharves, sewage disposal and solid
waste facilities and water supply systems if the water is available on reasonable
demand to the public. Also exempt are air and water pollution control facilities
and under certain circumstances leased facilities where the principal user has no
interest or purchase option on the leased portion. Additionally, a hotel that is
an integral part of an airport or port facility could be financed using industrial
development revenue bonds.
In computing capital expenditures under option two above, capital expenditures
from any feeder plant, even though it is in a different jurisdiction, must be
included. Additionally, research and development expenditures, no matter where
conducted, for the product to be manufactured must be included as a capital expen-
diture.
r�
u
•
•
•
:�
i
n
0
EXAMPLE TIME SCHEDULE
INDUSTRIAL DEVELOPMENT REVENUE BONDS
DAY
DESCRIPTION
1
Retain Bond Underwriter and Bond Counsel
10
Decision to use Industrial Development Bond Financing
20
Inducement Resolution to be passed by Issuing Body
25
First Draft of Loan Agreement and Trust Indenture to all members of
the financing team for Review
30
First financing team meeting to Review Documents and
financing structure
38
Second Draft of Loan Agreement and Trust Indenture and first
draft of Offering Memorandum (or Official Statement if publicly
offered) to all members of the financing team for Review
55
Financing Documents and Offering Memorandum approved by Company,
Underwriter and Bond Counsel
57
File for Validation Hearing
78
Validation Hearing
108
Expiration of Appeal Period
108-113
Marketing of the Bonds and presentation of Purchase Proposal
by Underwriter to the Company
114
Sale Resolution passed by Issuing Body
120
Closing and Delivery of the Bonds