Industrial Development Revenue Bond Program
The Industrial
Development Revenue Bond Program administered by the Mississippi
Business Finance Corporation
(MBFC) reduces the interest costs of financing projects for companies,
through the issuance of both taxable and tax-exempt bonds. Certain
tax incentives, such as those provided by the Mississippi Rural
Economic Development Assistance Program (RED), are designed to
enhance projects which are financed through MBFC issued Industrial
Development Revenue Bonds. Companies that meet eligibility requirements
may receive Mississippi corporate income tax credits. Credit
amounts available to an eligible company are a function of the
company’s project related debt service. Other tax incentives
such as sales tax exemptions on bond financed assets are also
available. Ad valorem exemptions may be granted if approved by
the appropriate city and county.
ELIGIBILITY
The company must be a private enterprise located, or to be located,
within the State of Mississippi. Under limited circumstances
nonprofit entities may qualify.
Tax-exempt Bonds
- The recipient must meet the
tax-exempt financing eligibility requirements imposed by state
and federal law. At present, only
manufacturing and processing business are eligible.
Taxable Bonds
Below are examples of businesses that are eligible for taxable
Industrial Development Revenue Bonds.
- Companies which manufacture,
process, store, warehouse, assemble, or distribute agricultural,
mining or industrial products;
- Research and development enterprises
engaged in developing or improving new or existing products
or processes; and
- Hotels, offices, shopping
centers or other commercial operations that the board may approve.
MBFC considers each project on a case-by-case basis. The company
must have adequate financial resources to give reasonable assurance
that all principal and interest on the bonds can be paid. Generally,
it must be shown that the project will benefit the local economy
by providing increased employment.
USE OF PROCEEDS
The proceeds of a bond issue may be used for the acquisition
and construction of real property, machinery and equipment, capitalized
interest, and necessary reserve funds as approved. A limited
amount may be applied to bond issuance expenses.
RESTRICTIONS
Although there is no restriction on the amount of taxable debt
which may be borrowed, there is a $10 million capital expenditure
limit on tax-exempt financing. The Deficit Reduction Act of 1984
imposed a limitation on the use of tax-exempt bonds by companies
at all locations where facilities are financed with these bonds.
Individual beneficiaries of tax-exempt financing may have no
more than $40 million of such issues outstanding nationwide.
Expenditures made before MBFC approval of a project typically
cannot be included in the bond financing.
Tax Exempt financing under Internal Revenue Code requires that:
- Bond proceeds used for acquisition
of land must constitute less than 25% of the total bond issue.
- Bond proceeds may not be used
to acquire an existing building unless an amount equal to 15%
of the building cost,
separate and apart from land cost, is used for renovation or
improvement purposes. These renovations or improvements must
be done within two years of the date of the bonds or the date
of acquisition of the building, whichever is later.
- Except in very limited situations,
bond proceeds many not be used to finance the purchase of used
equipment.
LOAN AMOUNTS AND TERMS
The maximum term of a bond issue will be equal to 120% of the
average life of the financed facility or 30 years, which is less,
or a lesser term if required by MBFC or applicable law. The bonds
may contain a call provision.
The interest rate on the bonds may be fixed or variable. The
effective loan rate to a company under this program will be determined
using a combination of the following: (i) the interest rate on
the bonds; (ii) the costs of issuing the bonds; and (iii) the
annual fixed costs attributable to the fees of MBFC, the bond
trustee, and the paying agent, and if applicable, any credit
facility issuer and the letter of credit issuer.
COLLATERAL
The bonds will be secured by an irrevocable direct pay letter
of credit or other credit enhancement acceptable to MBFC. MBFC
may also require additional security which could consist of a
pledge of assets of the company.
ISSUANCE AND PLACEMENT OF BONDS
MBFC will issue bonds to obtain funds it may loan to the company.
Only bonds rated investment grade or higher will be issued by
MBFC. This typically requires that a letter of credit be obtained
from a commercial bank or a guaranty provided by another company.
The rating on the bonds depends entirely on the credit of the
borrowing company, or the credit enhancement provided through
a letter of credit or a guaranty. As an alternative, unrated
bonds may be privately placed in large denominations.
Bonds will be sold by MBFC publically or will be placed with
private investors. Determining how bonds are sold shall be a
joint decision of MBFC and the company.
ASSOCIATED COSTS
The borrower will be responsible for the following costs associated
with the bond issue:
- The borrower will be required
to pay to MBFC, concurrently with the submission of the application,
a non-refundable application
fee in the amount of $500. The borrower may also expect to pay
a processing fee to the issuer of the letter of credit in an
amount customarily charged by such institution for reviewing
and processing applications.
- Costs of issuance include
(to the extent applicable) the bond underwriters discount and
fees of its counsel, the acceptance
fee of the bond trustee and paying agent and fees of their counsel,
bond counsel fees, printing costs, and rating agency fees.
- The borrower will be obligated
to make certain annual fee payments on tax-exempt bonds. Such
fees include (to the extent
applicable) those of MBFC in the amount of 1/8 of 1% of the outstanding
principal owed on the bonds or such lesser amount as allowable
by the Internal Revenue Code, the bond trustee fees, the paying
agent fees, and the remarketing agent fees. A one time processing
fee, based on the amount of the transaction, is paid to MBFC
on taxable bonds.
TYPICAL PROCESS
Financing manufacturing and processing projects with Industrial
Development Revenue Bonds in Mississippi is a relatively simple
and quick process, normally requiring about three months from
start to delivery date. The following steps are involved in a
typical tax-exempt issue. An application is not required for
a taxable issue.
- The project is presented to
the MBFC Board of Directors for consideration of an inducement
resolution.
- A qualified company must submit
three copies of a completed application and a non-refundable
application fee to MBFC.
- Each application must be accompanied
by a written indication of interest or commitment from a qualified
bond purchaser or
a financial institution to issue a letter of credit in support
of the bonds.
- MBFC staff will review applications
on the basis of completeness, program guidelines, financial
soundness of the
company, and state and federal law eligibility.
- If adopted, MBFC will require
execution of an indemnity agreement. Adoption, however, does
not commit MBFC to sell bonds
to finance the project.
- In accordance with the Internal
Revenue Code, local public hearings must be held before bonds
are issued.
- At the bond closing, company
representatives will execute all required documents.
