Developers

Tax-Exempt Financing 101

Tax-exempt financing lowers the overall cost of capital to fund a project because state and federal income tax is not applied to this type of bond. The lower overall cost of this type of financing makes them attractive to investors.

Companies that want to access tax-exempt financing need an eligible project and an eligible issuer, which can be a local government or a port authority, such as the Finance Authority. Public infrastructure projects typically qualify for tax-exempt financing.

Bond rates are set when the bonds are issued and can be impacted by a number of factors, including:

  • The term of the financing
  • The underlying credit strength of the borrower
  • The financing structure of the transaction

 

Market Access 101

There are a few ways that bonds are typically placed:

  • INSTITUTIONAL INVESTORS: The bonds are credit enhanced and placed in the market. The Finance Authority’s Bond Fund can place bonds in the national capital marketplace, taking advantage of the series of reserves in place (including $10 million in cash and Letter of Credit) to allow for more competitive rates for the borrower
  • PRIVATELY HELD: The bonds are placed with the borrower’s lending institution. This can happen when the bank is willing to hold that bond as an investment in its portfolio
  • OTHER SOURCE: The bonds are purchased by a related entity of the borrower that is willing to assume the risk of the transaction
  • BORROWER BASED: If the borrower is a rated credit, the bonds can be sold in the marketplace on the strength of the borrower’s credit