Tax-exempt borrowing can be a cost effective financing vehicle for long-term capital projects or to refinance previously issued debt. As an instrumentality of the State of Vermont, VEHBFA is able to issue low cost tax-exempt municipal bonds and then as a conduit issuer, loan the bond proceeds back to eligible borrowers.
The State of Vermont does not provide any pledge or support to the repayment of any of VEHBFA’s debt.
Eligible borrowers include:
- Non-profit libraries that serve the public
- Private or independent non-profit university, college, primary or secondary schools in the state
- The University of Vermont
- The Vermont State Colleges; or
- Non-profit hospital as defined in 18 V.S.A. § 1902
- Non-profit institution whose purpose is devoted primarily to the maintenance and operation of diagnostic and therapeutic facilities for medical, surgical or psychiatric care of ambulatory patients, for which the Agency of Human Services, if required, has issued a certificate of approval
- Non-profit licensed nursing home
- Non-profit assisted living facility, non-profit continuing care retirement facility, non-profit residential care facility or similar non-profit facility for the continuing care of the elderly or the infirm, provided that such facility is owned by or under common ownership with an otherwise eligible institution, and in the case of facilities to be financed for an eligible institution provided by this subdivision (5) of this subsection, for which the Green Mountain Care Board, if required, has issued a certificate of need.
VEHBFA provides three types of financing alternatives for borrowers:
- Publically Placed Bond Sale: Bonds are sold publically through an underwriter or investment banker. Publically sold bonds may require an investment grade credit rating and/or credit enhancement from a bank letter of credit or a bond insurance company. Bonds can be issued as a fixed rate or variable rate debt.
- Privately Placed Bond Sale: These are sales made directly to an institutional investor, such as a bank, or as a direct sale to one or more private investors. These private investors must satisfy the sophisticated investor rules established by the Securities Exchange Commission.
- Lease Financing: VEHBFA is able to offer tax-exempt leasing on a conduit basis for equipment and related construction expenses, typically for short to medium-term projects. Lease financings typically use standardized loan documents and can be negotiated or competitively bid.
VEHBFA provides access to tax-exempt capital markets, but does not:
- Directly loan funds of its own
- Enhance the credit quality of the bonds that it issues
- Stand behind the bonds it issues
Agency financings are repaid solely with funds provided by the underlying borrower.
Reimbursement of Capital Expenses Already Incurred: A reimbursement resolution should be adopted by the borrower’s governing body as soon as the project being financed is framed. The resolution states the borrower’s intention to seek reimbursement for project costs paid with borrower equity using tax-exempt loan proceeds. Reimbursements for paid project costs are permitted for up to 60 days prior to the adoption of the resolution. There are certain “soft costs” that can be excluded from the reimbursement resolution. A borrower should consult with its legal counsel for the appropriate wording of the reimbursement resolution and the definition of a “hard cost” vs. a “soft cost”.
Capitalized Interest: When a project is expected to generate revenue that, among other things, will to be used to repay the debt, loan interest incurred prior to project revenues becoming available may be added to the amount being borrowed.
Refunding (Refinancing) Existing Debt: Refunding debt is typically done to lower the interest cost of a loan or to obtain less onerous bond covenants.
Refunding existing debt may be done on a current or advanced basis. An advanced refunding occurs when bonds are refinanced before the loan’s call provision has expired. A borrower may only do one advanced refunding during the life of a bond issue. A current refunding occurs on or after a bond’s call date. There are no limits to the number of current refundings that may be done.