The Upper Illinois River Valley Development Authority (UIRVDA) acts as a”conduit” or “middle-man.” The bonds issued by UIRVDA will be paid off by revenues available from the borrower. Bond buyers include insurance companies, banks, mutual funds or brokerage houses on behalf of individuals. Buyers of the bonds provide funds that are transferred to the borrower to pay for the project. The borrower then pays the money back directly to those who bought the bonds from UIRVDA on an annual basis until the debt created by the project is eliminated.
Steps in the bond process are as follows:
A). Project Eligibility – The Company should meet with the Executive Director to discuss the proposed project. Following the discussion, the Company should complete an application and schedule the project for a meeting of the Board of Directors.
B). Preliminary Approval – At this meeting the Authority will consider the passage of a Preliminary Inducement Resolution. This resolution provides the Authority with the Company’s intention to finance the planned investment on a tax-exempt basis. This resolution does not bind the company to use bonds, but identifies the date where purchases can qualify. The date of this resolution is important with tax-exempt issues because tax laws generally allow for costs incurred after the date of this resolution to be eligible to be included in the bond amount. Costs incurred before the date of this resolution are generally not eligible to be included as part of the bond. However, there is a 60 day “look-back” provision that allows costs incurred just before the date of the resolution.
C) Project Sizing – The Company should meet with the Financing Team such as the underwriter, bond counsel, issuer, financial advisor, consultant, etc. This meeting will identify the complete listing and dollar amount of expenditures to be financed. The Company will engage the various parties to the transaction.
D) Credit Enhancement – The financing team will help the Company either solicit bids for letters of credit or work with the Company’s existing bank to provide credit support. Other options may include requesting the Moral Obligation Credit Enhancement from the Governor’s office. The Authority’s legislation allows for the State of Illinois to provide a quasi-guarantee of the bonds. This quasi-guarantee is not automatic. It must be formally requested and screened for eligibility. The Governor’s office has issued strict guidelines for this eligibility.
E) Volume Cap Allotment – In the case of Private Activity Tax-Exempt Bonds, the Financing Team will develop a strategy to acquire volume cap for the proposed project. Volume cap is generally limited and in great demand. Some methods include requesting allocation from the Governor’s office under the state agency pool, asking other municipalities to transfer their allotment to the Authority or asking municipalities if they would sell their volume cap allocation to the Company for the proposed project. Although the purchase of volume cap is an additional cost to the issuance, when it is spread over the life of the bond and compared to the lower interest rate of tax-exempt financing, the cost is minimal.
F) Establish Timetable – Once all these elements are in place a timetable for the completion of the transaction will be established and documentation will begin to be drafted. The total process generally takes 60-90 days.