CHEFA is guided by its mission of improving the lives of Connecticut's citizens through support of the State's nonprofit providers of health and education services. This support includes access to the tax-exempt markets.
CHEFA has the dual role of providing access to the tax-exempt markets while protecting the investments of individual and institutional bondholders. Historically the protection of bondholders has been accomplished through bond insurance and bank letters of credit. The Authority requires credit enhancement as follows:
CHEFA can finance an institution's capital projects and related costs, so long as the project is related to the tax-exempt purpose of that institution. These projects may consist of larger components such as acquisition, construction, renovation, furniture and equipment and other capital needs, as well as smaller elements including computers, telecommunications equipment and health care technology. Other eligible projects include refinancing outstanding taxable or tax-exempt debt, mortgages and loans.
There are costs in addition to the core project that may be eligible for inclusion in your tax-exempt financing. The following are some of the costs CHEFA can usually finance under a bond transaction.
There are costs associated with the issuance and closing of a tax-exempt bonds issue such as underwriter's fees, bond counsel, trustees and other charges which may be included in the financing. Tax law limits the amount of these costs of issuance that can be financed with bond or loan proceeds to 2 % of net proceeds. If such costs are above this 2 % limitation, an equity contribution must be paid by the borrower or from other sources.
Interest payments on the transaction may be financed as part of the issue for a specific time period. This capitalized interest serves to offset debt service payments when the project is not yet producing revenue.
The borrower should adopt a reimbursement resolution through its Board of Directors regarding the financing as soon as the project is formulated. This resolution may allow the institution to be reimbursed from the issue proceeds for expenses for the tax-exempt project that were paid within sixty days prior to the adoption of such a resolution. CHEFA can give you an example of a form of the reimbursement resolution.
Prior debt may be refinanced on a tax-exempt basis, including an outstanding bond issue, as either an advanced refunding or a current refunding. A current refunding is an option when the prior bonds included a call provision, and the prior bonds are currently callable by the institution. Bondholders receive a notice to redeem the bonds, and proceeds from the new bond issue are used to pay off the prior bonds within 90 days. An advance refunding can occur 90 days before the call provision on a bond issue, and requires that bond funds of the new issue are placed in an escrow product to pay debt service on the prior issue. The borrower only pays debt service on the new refunding bonds.
It is important to be aware that only one advance refunding is permitted by federal tax law for bonds issued after 1986. There is no limitation on the number of current refundings.
Any project that is not related to the underlying tax-exempt purpose of that institution cannot be financed with tax-exempt funds. For example, any project that may produce unrelated taxable business income, including a related facility location, would be ineligible. CHEFA staff can help you to review your proposed projects for eligibility. If the unrelated taxable component is a portion of an eligible larger tax-exempt project, the unrelated purpose can be structured as a taxable part of the financing. There are various thresholds of tax law that serve to optimize the amount of tax-exempt debt that can be funded for a particular project.
CHEFA cannot finance projects for any facility to be used for religious instruction or worship (for example chapels), or any facility used primarily by a school or department of divinity.
For more information on project eligibility, please contact our New Business Department by calling (860) 520-4700 or e-mailing .
