8/9/2019 Letters of Credit Webinar
1/24
1
New uses and structure for Federal Home LoanBank Letters of Credit can help communities byproviding credit enhancements for tax-exemptbonds and improve cost of capital.
8/9/2019 Letters of Credit Webinar
2/24
2
LC Structure, Usage, Benefits
AGENDA
Overview
Introduction of Presenters
Doug Iverson
Senior VPDirector of Marketing, FHLBI
Mark PascarellaLending Officer, FHLBI
Thomas PetersonPartner
Ice Miller
Denise Yvette Barkdull
PartnerIce Miller
Steven Kennedy, Jr.Vice President
Lancaster Pollard
Swiss Village Overview
Questions & Answers
8/9/2019 Letters of Credit Webinar
3/24
3
Arthur and Gloria Muselman Wellness Pavilion Swiss Village, Berne, Indiana
About Swiss Village
Opened in 1968
Continuing care facility offering independent living tofull nursing home care with many on-site services suchas banking, barber and beauty shops, and library
350 residents; 340 employees
About the Pavilion
Named after a couple who were active residents ofSwiss Village and supporters of the wellness program
21,200 square feet, aquatic center, child care, kitchen
Exercise room which can also be rented by publicfor events such as receptions and club meetings
Pavilion used by both residents and community.Community pays membership fee which is used tocover operation costs
Opened January 2009
8/9/2019 Letters of Credit Webinar
4/24
4
Arthur and Gloria Muselman Wellness Pavilion Swiss Village, Berne, Indiana
Funding
A pledge drive has raised $3.7 million to date.Goal is $4 million.
FHLBI letters of credit to support bond issuance
> First Bank of Berne - $4.8 million
> Bank of Geneva - $2.2 million
Investment bank - Lancaster Pollard & Co.,Columbus, OH
8/9/2019 Letters of Credit Webinar
5/24
5
Standby Letters of Credit
About FHLBank Standby Letters of Credit
Issued on behalf of FHLBI member institutions
Cost effective way to improve credit rating oftransaction and/or to provide credit enhancement
On July 30, 2008, Housing and EconomicRecovery Act of 2008 (HERA) signed into lawpermitting FHLBanks to issue LCs to backtax-exempt, non-housing bonds
> LC legislation championed byRep. Sander Levin (D-MI)
This expanded authority set to expire onDecember 31, 2010
8/9/2019 Letters of Credit Webinar
6/24
6
Standby Letters of Credit
FHLBI can issue LCs to assist members with
Residential housing finance
Community lending eligible for FHLBIsCommunity Investment Program
Asset/liability management
Liquidity or other funding
8/9/2019 Letters of Credit Webinar
7/24
7
Standby Letters of Credit
Types of Standby LCs
Traditional Standby: FHLBI guarantees payment tobeneficiary on behalf of member
Confirming: Member issues an LC that isguaranteed by FHLBI
Direct Pay: FHLBI is drawn on directly by beneficiaryto make recurring payments, typically part of abond financing
8/9/2019 Letters of Credit Webinar
8/24
8
Standby Letters of Credit
Standard Fees
Standby, Confirming, and Direct Pay:37.5 BPS annually, beginning with settlement date
Community Investment Program (CICA):20 BPS annually, beginning with settlement date
Transaction Fee of $50 for all draws
If FHLBI uses outside counsel, fee to be paid by member
Early termination fee of up to $5,000 may apply
8/9/2019 Letters of Credit Webinar
9/24
9
Standby Letters of Credit
On the Regulatory Front:
Regulator has been asked by another FHLBanks to clarifyif new authority under HERA must also qualify for CommunityInvestment Program (CIP)
To date we have not received an opinion from
our regulator
If the regulator were to require project to meet CIPcriteria, one of the following conditions would have to be met:
> Housing projects for households up to 115% AMI> Projects creating or preserving jobs
> Small business loans> Projects providing services to a qualified area> Income limits do not apply to projects in eligible areas (empowerment zones, brownfields, enterprise communities)
8/9/2019 Letters of Credit Webinar
10/24
10
Standby Letters of Credit
Other Specifications
Standby LCs limited to maximum term of 20 years
Member must collateralize total amount of Standby LCsand includes Standby LCs in calculating a memberscapital stock requirement.
For more information, please call
Mark Pascarella, Lending Officer
317.465.0457
or
Brian McCoy, VP, Advances Manager
317.465.0503
The FHLBI is not a financial, investment, or tax advisor and does not make anyrepresentations as to such regarding the use of Standby LC. It is the members
sole responsibility to research the legal ramifications of using FHLBI Standby LC
and the effect it may have on the taxable status of a bond issuance.
8/9/2019 Letters of Credit Webinar
11/24
11
Tax-exempt Bonds & How They Work
Role of Federal Home Loan Bank
Borrower contracts with bank to provide an LCguaranteeing payment on bonds
With LC, bonds are marketable because bondholder reliessolely on credit of bank providing the LC
FHLBank can offer any member an LC usingFHLBanks high credit rating
8/9/2019 Letters of Credit Webinar
12/24
12
Role of the Federal Home Loan Bank
Role of Federal Home Loan Bank continued
FHLBanks LC to secure bonds will provide
> Ready access to bond market
> Higher credit rating (and therefore lower interest rate)than member can achieve on its own credit
Member and Borrower enter into credit(or reimbursement) agreement
> Borrower agrees to reimburse member for anypayment made on bonds
> Member takes security and places any necessary
financial and debt restrictions on borrower
8/9/2019 Letters of Credit Webinar
13/24
13
Role of the Federal Home Loan Bank
Is this program new?
No, but recent federal legislation expanded the useof the FHLBank LCs
Historically, the FHLBanks could provide LCs onlyfor bonds issued to finance acquisition or construction
of multifamily housing FHLBanks now authorized to issue LCs to supportall varieties of tax-exempt bonds
8/9/2019 Letters of Credit Webinar
14/24
14
Tax-exempt Bonds & How They Work
Who can use Tax-exempt Bonds?
Traditionally, tax-exempt bonds may be issuedto finance capital costs of acquisition, constructionand equipping of
> manufacturing facilities
> solid waste disposal facilities (or portions of facilitiesdealing with the solid waste produced by a facility)
> multifamily rental housing facilities
Recently enacted Federal Stimulus Bill changes all the rules
8/9/2019 Letters of Credit Webinar
15/24
15
Tax-exempt Bonds & How They Work
The New Who
Essentially, any business enterprise can qualify fortax-exempt borrowing to fund capital expenditures
> Recovery Zone Facility Bonds
> $15 billion authorized to be issued nationwide
> Allocated to states and suballocated to counties/largemunicipalities based on job losses
> Each state to receive a minimum of $135 million
Manufacturing definition expanded now covers intangibles
Heartland Disaster Bonds - $3.2 billion to Indiana as a resultof the flooding in Spring 2008
> Any business that suffered a loss is eligible
8/9/2019 Letters of Credit Webinar
16/24
16
How Do Bonds Work?
Tax-exempt bonds issued by governmental entity,such as city, town or county or by statewide entitysuch as Indiana Finance Authority ("Issuer"), theMichigan State Housing Development Authority or any
other statewide issuer" Bonds sold to market through underwriter or
placement agent
Proceeds of bonds then lent to borrowing entity ("Borrower")for use on capital expenditures for qualifying project
Tax-exempt Bonds & How They Work
8/9/2019 Letters of Credit Webinar
17/24
17
How a letter of credit works.
Tax-exempt Bonds & How They Work
8/9/2019 Letters of Credit Webinar
18/24
18
If you have a potential project and wouldlike to discuss its eligibility, contact:
Denise [email protected]
Thomas Peterson
Tax-exempt Bonds & How They Work
8/9/2019 Letters of Credit Webinar
19/24
19
LC Benefits, & Observations
Benefits to FHLBank Members
Community investment Provides opportunity forlocal financial institutions to invest directly intocommunity-based projects
New business opportunity Enables local institutions to
provide clients access to AAA-rated tax-exempt capital;places them on more level playing field with larger,rated institutions
Retain and grow local business relationship Mitigates riskassociated with larger institution providing debt capital; as aresult taking over depository and other ancillary services
8/9/2019 Letters of Credit Webinar
20/24
20
Benefits to FHLBank Borrowers
Maintain and strengthen local banking relationships Clients can access AAA- rated tax-exempt capital via localrelationships, ensuring continuity with local contact
Community investment borrowers LC fee is staying
local, rather than leaving community to non-local institution
LC Benefits, & Observations
8/9/2019 Letters of Credit Webinar
21/24
21
General Observations
Members lending limit restrictions may be overcomeby including multiple members in deal
If multiple members involved, one lead member iskey to structuring efficiencies
AAA-rated FHLBank LC is trading extremely well intodays financial markets; enhanced interest inflight to quality financial environment
Collateral posting requirements appear to be primarydeterrent to members using LCs
LC Benefits, & Observations
8/9/2019 Letters of Credit Webinar
22/24
22
Name: Denise Yvette BarkdullPosition: PartnerLocation: Indianapolis OfficePhone: (317) 236-5803Fax: (317) 236-5819E-Mail: [email protected]
Assistant Name: Corinne Cook-OliverAssistant Phone: (317) 236-2215Assistant E-Mail: [email protected]
Undergraduate School:Bachelor of Business Administration in Finance, Boise State University, Graduated in 1994
Graduate School:Master of Business Administration, Indiana University Kelley School of Business,Graduated in 1997
Law School:Indiana University School of Law Bloomington, Graduated in 1997
Admitted to Practice:Indiana
Mini Biography:Denise Barkdull assists state and local governments with taxable and tax exemptfinancings for direct governmental purposes, as well as economic development withintheir region. Ms. Barkdull provides counsel for, among other things, airports, solidwaste disposal facilities, single family and multi-family housing, municipal gas utilitiesand manufacturing facilities.
Biographies
8/9/2019 Letters of Credit Webinar
23/24
23
Name: Thomas W. PetersonPosition: PartnerLocation: Indianapolis OfficePhone: (317) 236-2494Fax: (317) 592-4731E-Mail: [email protected]
Assistant Name: Jan GluthAssistant Phone: (317) 236-2254Assistant E-Mail: [email protected]
Undergraduate School:University Diploma, with high honors, Darwin College, University of Kent,Canterbury,England, Graduated in 1982
A.B in Economics, Duke University, Graduated in 1983
Law School:Duke University, Graduated in 1986
Mini Biography:Thomas Peterson has served as bond counsel to state and local governmentsfor over 22 years. Mr. Peterson has also served as special counsel to the Federal HomeLoan Bank of Indianapolis in the development of their Letter of Credit program.
Biographies
8/9/2019 Letters of Credit Webinar
24/24
24
Steven W. Kennedy Jr., Vice President, is Lancaster Pollards investment
banker in charge of Indiana and Illinois. Lancaster Pollard is a national
investment banking and financial services firm that specializes in
providing capital funding and financial advisory services to the health
care, senior living, affordable housing and private education sectors. In
addition to underwriting tax-exempt bond offerings, Lancaster Pollard
provides organizations a complete range of funding options through its
FHA/GNMA/USDA/FNMA-approved mortgage lender subsidiary.
Since joining Lancaster Pollard in 2001, Mr. Kennedy has devoted 100% of
his efforts to providing health care organizations with financial advisory
and capital funding solutions. He has been instrumental in bringing tomarket a variety of financing structures totaling in excess of $500 million
and was named Lancaster Pollards National Healthcare Banker of the
Year in 2007. Prior to joining Lancaster Pollard, Mr. Kennedy worked for
United States Senator Richard G. Lugar (Indiana) in Washington D.C.
Mr. Kennedy earned his MBA from the Fisher College of Business at The
Ohio State University in Columbus, Ohio. He received bachelor degrees
(magna cum laude) in economics and political science and a certificate in
organizational studies from Denison University in Granville, Ohio. He
holds a General Securities Representative license, Series 7, and is a
frequent speaker on capital funding for community health care providers.
Biographies
Top Related