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Contact Us   |   January 27, 2015


Tax-Exempt Bond Financing


Your project financing can be structured as a fixed or variable rate public offering, or as a private placement issue.  Our staff can help analyze these options to structure an appropriate bond offering to meet the borrower's needs.

CHEFA's underwriting policy does not allow for the issuance of unenhanced non‑rated public offerings.


Fixed Rate Insured

Credit enhancement (guaranty) from a municipal bond insurance company typically provides the lowest cost of capital, but may not be an option to all borrowers.

In addition, Assured Guaranty is the only municipal bond insurer currently available.

Fixed Rate Stand Alone Issue

The Authority's general guidelines for unenhanced offerings are as follows.  Each proposed bond issue will be evaluated on a case-by-case basis.

  • Public Offering:  Minimum rating of "Baa2/BBB/BBB" from at least two of the three nationally recognized rating agencies (Moody's, Standard & Poor's, or Fitch) with no negative indications; $5,000 denominations permitted.
  • Limited Public Offering:  Issues rated "Baa3/BBB-/BBB-" by any one of the three nationally recognized rating agencies, with no negative indications with minimum $100,000 denominations.

The Board of Directors of the Authority accepted the preceding as general guidelines, but will evaluate each bond offering on a case-by-case basis.



Private Placement offerings may be issued as fixed or variable rate to borrowers that have a rating below "Baa3/BB-/BBB-" by any of the three nationally recognized rating agencies, or any unrated issue.  These transactions may be sold only to accredited investors or qualified institutional buyers with an initial investor letter acceptable to the Authority.


A variable rate structure requires credit enhancement from a Letter of Credit Bank with the highest short-term rating (A-1, P-1).

The Letter of Credit (LOC) provides guaranty and liquidity. Examples of letter of credit banks include:

  •  Bank of America
  •  Citizens Bank
  • JP Morgan Chase
  • TD Bank
  • Wachovia/Wells Fargo  

Costs of issuance

There are costs associated with the issuance and closing of a tax-exempt bond issue such as underwriter's fees, bond counsel, trustee 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. 

Capitalized Interest

Interest payments on the transaction may be financed as part of the issue for a specific period of time.  This capitalized interest serves to offset debt service payments when the project is not yet producing revenue.

Reimbursement of Capital Expenditures already Incurred

The borrower should adopt a declaration of intent (reimbursement resolution) by 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.  Please contact CHEFA for a sample form of the reimbursement resolution. 

Refinancing Existing Debt

Prior debt may be refinanced on a tax-exempt basis, including taxable commercial debt or an outstanding bond issue.  All previous debt to be financed must have been used for capital expenditures and is subject to bond counsel review.

Environmental and Tax Requirements

There are additional reporting requirements which must be addressed by the borrower for the bond financing.  These may include environmental studies and reports for the project location to be financed, and completion of a tax questionnaire by the client relating to the project and the client's business.   The borrower's completion of the tax questionnaire is the basis for determining the project's eligibility for tax-exempt financing, which is critical to ensure compliance with IRS regulations.