Transcript of Recovery Zone Bonds In North Carolina Sponsored by: NC Department of State Treasurer NC Association...
- Slide 1
- Recovery Zone Bonds In North Carolina Sponsored by: NC
Department of State Treasurer NC Association of County
Commissioners NC League of Municipalities October 22, 2009
- Slide 2
- 2 Presented by: Vance Holloman North Carolina Local Government
Commission Stewart Dickinson North Carolina Department of Commerce
Mary Nash Rusher Hunton & Williams LLP
- Slide 3
- 3 Overview General Rules Recovery Zone Designations Recovery
Zone Economic Development Bonds Recovery Zone Facility Bonds
Allocation in North Carolina Initial allocation Waiver and deemed
waiver Reallocation Process for issuing Recovery Zone Bonds
Recovery Zone Economic Development Bonds Recovery Zone Facility
Bonds Question & Answer
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- 4 Recovery Zone Bonds Two Types: Recovery Zone Economic
Development Bond (RZEDBs) (Internal Revenue Code 1400U-2) Finances
governmental purposes in a recovery zone Form of Build America Bond
45% credit to issuer Recovery Zone Facility Bonds (RZFBs) (Internal
Revenue Code 1400U-3) Private activity bond a kind of exempt
facility bond Finances a private use in a recovery zone Allows
private sector to borrow at tax exempt rate Typically the local
Industrial Facilities And Pollution Control Financing Authority is
the issuer For multi-jurisdictional projects, the North Carolina
Capital Facilities Finance Agency may also be the issuer Can be
used for governmental projects that have too much private use
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- 5 Designation of Recovery Zone: A recovery zone is any area
designated by the issuer as having significant poverty,
unemployment, rate of home foreclosures or general distress Issuer
has broad discretion to designate a zone in any reasonable manner
as it shall determine in good faith in its discretion (IRS Notice
2009-50) Designation of entire county is permitted Issuer should
adopt a resolution designating recovery zone; resolution should
recite factors that support the designation Designation of Recovery
Zone
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- 6 Recovery Zone Economic Development Bonds Recovery Zone
Economic Development Bonds (RZEDBs) RZEDBs are a subset of Build
America Bonds (BAB) The amount of the refundable credit is 45% of
the amount of interest payable on the interest payment date The
issuer must irrevocably elect for the obligation to be a recovery
zone bond Very specific reporting requirements for the 8038G
Construction found in IRS Notice 2009-26 (found at www.irs.gov)
Line 18 must read Recovery Zone Economic Development Bond (Payment
Option) Additional information must be attached Form 8038CP must be
filed 45-90 days before each fixed rate interest payment date to
receive credit on the related interest payment date
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- 7 Qualifications for RZEDBs 100% of available project proceeds
or APP (i.e. sales proceeds less an amount not to exceed 2% costs
of issuance), net of any amounts placed in a reasonably required
reserve fund, must be used for qualified economic development
purposes Qualified economic development purposes are described as
expenditures for purposes of promoting development or other
economic activity in a recovery zone and include capital
expenditures paid or incurred with respect to property in the zone,
and expenditures for public infrastructure and construction of
public facilities Recovery Zone Economic Development Bonds
(contd)
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- 8 Thus, RZEDBs can be used to finance nearly any capital
expenditures that promote economic development or economic activity
in the recovery zone Infrastructure (roads, water and sewer,
electric transmission) Schools Public buildings Industrial parks
Recovery Zone Economic Development Bonds (contd)
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- 9 Other Characteristics and requirements of RZEDBs: Interest is
taxable to the holder Bond obligation must be issued by December
31, 2010 General Tax Exempt bond rules (including arbitrage and
rebate) under Section 103 of IRS Code apply Issuer must have a
reasonable expectation that it will spend Available Project
Proceeds within three years Yield for arbitrage purposes is reduced
by the credit No refundings allowed; can reimburse for expenditures
paid after the effective date of ARRA (2/17/09) and originally
financed with short-term temporary financing Davis-Bacon DOES apply
Recovery Zone Economic Development Bonds (contd)
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- 10 Recovery Zone Facility Bonds RZFBs are a new category of
exempt facility bonds under IRC 142 95% or more of the net proceeds
must be used for recovery zone property Recovery Zone Property is
depreciable property that is located and first used in the active
conduct of a qualified business in a recovery zone Property must be
constructed, reconstructed, renovated or acquired by the borrower
after the date the recovery zone was designated Important: A used
building can only be acquired with RZFB proceeds if the borrower
spends money on renovation, rehabilitation, improvement and
expansion that doubles the basis of the building with 24 months
after the zone is designated Recovery Zone for RZFBs is the same as
the recovery zone for RZEDBs
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- 11 Recovery Zone Facility Bonds (contd) Qualified Business
means any trade or business other than: Residential rental property
or Facilities described in IRC 144(c)(6)(b) (i.e., commercial golf
course, country club, massage parlor, hot tub, suntan, racetrack,
gambling facility, or business that sells alcoholic beverages for
off-premises consumption) Example: Shopping centers or other retail
Manufacturing Distribution or warehouse facilities Hotels
Restaurants Office buildings The issuer is a countys Industrial
Facilities and Pollution Control Financing Authority under NCGS
159C (N.C. Session Law 2009-140)
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- 12 Allocation ARRA established a limited allocation for
Recovery Zone Bonds across the country ($10 billion for RZEDBs, $15
billion for RZFBs), to be allocated to the states, and then to
large cities and counties within the states based on loss of
employment between December 2007 and December 2008 Initial
Allocation by the U.S. Department of Treasury to states/large
municipalities/counties found in IRS Notice 2009-50 Found at
www.irs.govwww.irs.gov Click on Tax Exempt Bond Community tab Click
on IRS Releases Guidance on ARRA Bond Provisions Click on Notice
2009-50 (Recovery Zone Bond Volume Cap Allocations) and on the
words within that paragraph that say Click here to access these
suballocationsthat will lead to the state by state list of city and
county allocationsNotice 2009-50 (Recovery Zone Bond Volume Cap
Allocations)Click here to access these suballocations
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- 13 Allocations North Carolina law NCGS 143-433.6, as amended by
Session Law 2009-140, provides that the North Carolina Tax Reform
Allocation Committee (also known as the Volume Cap Committee) will
be responsible for reallocation North Carolina Department of
Commerce (Commerce) is the administrative arm of the Volume Cap
Committee If initial allocation is not used by a large municipality
or county that received it, the allocation may only be reallocated
by the State through the Volume Cap Committee A county can
designate a city or town within the county to use the allocation
without going back to the State, but cannot transfer the allocation
to a governmental unit outside the county
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- 14 Total Allocation in North Carolina RZEDs Allocation North
Carolina received an allocation of $418,154,000 RZFBs Allocation
Total allocation: North Carolina received $617,231,000 U.S.
Treasury then made suballocations of that amount to large
municipalities (Cary, Charlotte, Fayetteville, Greensboro, High
Point, Raleigh, Winston-Salem) and to counties based on the ratio
of employment losses compared to the states losses
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- 15 Total Allocation in North Carolina (contd) Commerce has
introduced rules to be added to the North Carolina Administrative
Code in Section 04 NCAC 01H.0400-.0404 Rules require counties and
large municipalities to designate projects to be financed with
recovery zone bonds by December 15, 2009 or allocation will be
deemed waived for reallocation by the State County or large
municipality can waive allocation and request the State to
reallocate it to a project in another governmental unit Issuers
should file a copy of IRS Form 8038/8038G as applicable with
Commerce Forms for verifying use of allocation, waiver of
allocation and requesting reallocation will be available at
www.nccommerce.com under Business Services Financial
Incentiveswww.nccommerce.com
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- 16 Process to Keep or Waive Allocation Process for all RZ Bonds
1.Adopt a resolution designating recovery zone 2.Identify projects
for RZEDB and/or RZFB financing 3.Adopt a resolution designating
the project(s) to use applicable amount of recovery zone allocation
4.If issuer wishes to waive its allocation and request that it be
reallocated to a project in another jurisdiction, adopt a
resolution identifying the project 5.Either issue obligation before
12/15/09 or file forms with Commerce before 12/15/09 identifying
project(s), waiving some or all of allocation, and, if applicable,
identifying projects for waived allocations If bonds are not issued
and no form is received on or before 12/15/2009 Allocation will be
deemed waived for reallocation by the State
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- 17 Process for Reallocation The Volume Cap Committee will
consider requests for reallocation on an ongoing basis In making
reallocation decisions, the Committee will consider the following
criteria (as stated in the rule): Whether the unit is in
competition with another state for project benefits such as jobs
and tax base Whether the availability of the reallocation is a
crucial part of attracting a new company or keeping an existing
company in place Whether the requested reallocation will benefit a
project for which a county or municipality is already issuing
Recovery Zone Bonds Whether the requested reallocation will benefit
a project that was designated by a county or large municipality in
connection with a waiver of its original allocation The ability of
the local government or company benefiting from the Recovery Zone
Bond to obtain financing and close the issue in a timely manner,
including demonstration of a commitment from a bank or other
financial institution to purchase or underwrite the Recovery Zone
Bonds.
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- 18 Process to Issue RZEDBs Process to issue bonds RZEDBs Must
be issued in the same form as any other governmental debt in North
Carolina General obligation bond or Revenue bond or 160A-20
installment financing
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- 19 Process to Issue RZEDBs 160A-20 For 160A-20s, follow the
usual steps for issuance Adopt a resolution authorizing filing of
the application with LGC and making findings Conference with the
LGC re: process and project Hold public hearing, if required Send
out RFP to banks seeking financing bids Choose a lender Adopt
resolution approving financing Execute documents File 8038G and
8038CP to obtain credit
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- 20 Process to Issue Recovery Zone Facility Bonds Bonds to
finance private entities are issued by the county industrial
facilities and pollution control financing authority (the
Authority) County/Large Municipality designates recovery zone and
designates the Authority as the issuer of the Bonds Authority
adopts inducement or preliminary resolution Recovery zone facility
projects are special purpose projects under N.C.G.S. Ch. 159C; no
need for Commerce approval of the project County holds public
hearing and adopts approval in principal resolution
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- 21 Process to Issue Recovery Zone Facility Bonds (contd)
Private company (with assistance from underwriter or placement
agent) arranges for private placement or for letter of credit to
support bonds Company must be able to qualify for the loan
Application and bond documents submitted to the N.C. Local
Government Commission (LGC) Authority meets to give final approval
to bond documents LGC meets to approve bond documents Bonds are
sold and funds spent on project Form 8038 filed with IRS
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- 22 Letter of Credit Backed Recovery Zone Facility Bonds
Structure Typical Structure Recovery Zone Facility Bond $10,000,000
Low Floater Borrower Authority Bond Trustee Bondholders Bank Note
Assign Loan Agreement and Note $ RZFB Bond Letter of Credit
Reimbursement Agreement Project Loan Agreement Owns Project
Construction Fund $ $
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- 23 Process to Issue Recovery Zone Facility Bonds (contd)
Typical Costs $10 million Letter of Credit backed Bond Ongoing
Interest Cost and Fees% of Principal Bond interest rate2.60 (10 yr.
average) Letter of Credit Fee1.50 (estimated) Remarketing Fee.125
(estimate) Trustee Fee.025 (estimate) 4.25% total estimated annual
cost Upfront Fees (Estimates) Underwriting Fee$50,000 (.5%)
Estimated Legal Fees Authority Counsel5,000 Bond Counsel35,000
Underwriter Counsel15,000 Bank Counsel15,000 Company Counsel15,000
LGC Fee1,000 Rating Agency10,000 Trustee Accountant2,000
Miscellaneous Expenses3,000 $151,000* * Up to 2% of principal
amount (in this case $200,000) can be funded from bond
proceeds
- Slide 24
- 24 Questions? NC Department of Commerce (919) 733-0886 Stewart
Dickinson Mark Poole Mary Mae Johnson Local Government Commission
(919) 807-2350 Vance Holloman Tim Romocki Jim Baker Mary Nash
Rusher (919) 899-3066 Hunton & Williams LLP