Documents establishing the terms of a municipal financing vary with the type of Bonds being issued (i.e., General Obligation Bonds vs. Revenue Bonds), the laws establishing the Issuer, whether the Bonds are a Conduit Financing, whether the Bonds are sold in a Private Placement or at a Competitive Bid or a Negotiated Sale, whether there is Credit Enhancement provided and certain other factors. Different firms may have different approaches to the documentation of the same type of financing. Accordingly, not all of the basic documents listed below may be used in a particular public finance transaction. Conversely, in certain financings, there may be documents used that are not listed below.
A resolution adopted by the issuer or the borrower to indicate the preliminary intention to issue the tax-exempt bonds, subject to satisfaction of certain conditions precedent which may be satisfied on or after the adoption of a bond resolution.
The formal authorization to issue the bonds, adopted by the governing body of the issuer.
A contract between an issuer and a trustee under which the issuer issues bonds and specifies their maturities, interest rates, redemption provisions, form, exchange provisions, security and other terms.
The document prepared by, or for, the Issuer and distributed to investors to provide disclosure with respect to one or more issues of bonds.
Contract in which the Issuer and/or borrower agrees to sell bonds to the underwriter.
Obligation, or “undertaking,” of the Issuer or an obligated person under SEC Rule 15c2-12, typically in the form of a contract or certificate.
There is considerable variation in terms of the tax documentation accompanying a Tax-Exempt Bond transaction. The common purpose of this documentation is, however, to establish that the transaction meets the applicable requirements of the Code to allow the Interest on the Tax-Exempt Bonds to be excludable from federal income tax. For example, in a multi-family housing Revenue Bond financing, there is typically a tax regulatory agreement in which the Conduit Borrower agrees to comply with the federal tax requirements applicable to the Bonds; this document is typically recorded. In other transactions, there may be one or more of a tax certificate, which may also be called an Arbitrage Certificate, although in each case it will cover matters far beyond the Arbitrage requirements.
The approach to the tax documentation is largely a matter of Bond Counsel or Special Tax Counsel preference, with different forms being used in different types of financings. You should consult with your supervising attorney and, if appropriate, Special Tax Counsel, as to the proper approach to the tax documentation in connection with a particular financing. A Tax Certificate may include various additional certificates, including an Issue Price certificate to be signed by the Underwriter, as well as schedules related to the project being financed and other documentation.
Depending upon the type of transaction, Issuers of Tax-Exempt Bonds are required to file one of the forms in the IRS Form 8038 series to report the issuance of Tax-Exempt Bonds to the IRS. In most cases, this will be either an IRS Form 8038-G for Governmental Bonds or Governmental Purpose Bonds or an IRS Form 8038 for qualified Private Activity Bonds. The filing of these forms – a critical step in establishing and maintaining the federal income tax-exempt status of the Interest on Tax-Exempt Bonds – is often the responsibility of Novices. The forms are due by the 15th day of the second calendar month after the end of the quarter in which the Tax-Exempt Bonds are issued.
Certificate of a responsible officer of the Issuer and/or Borrower certifying compliance with the limitations on Arbitrage imposed on the Tax-Exempt Bonds by the Internal Revenue Code.
Form required to establish and maintain the federal income tax-exempt status of the interest on tax-exempt bonds. Known as Form 8038-G for governmental bonds.
Credit Enhancement is a term which refers to a contractual arrangement to provide for the payment of the Principal of, Interest, or Premium on the Bonds, or for the Redemption of the Bonds in the Event of a Default or late payment by the Issuer or Conduit Borrower. Credit Enhancement is used for the purpose of improving the creditworthiness of the Bonds. Types of Credit Enhancement include a Letter of Credit, Bond Insurance Policy or Guaranty.
Unlike Credit Enhancement, a liquidity facility is a document often used in the case of certain Variable Rate financings for the purpose of providing liquidity to the Issuer and/or Conduit Borrower (e.g., so that, if the Bonds are tendered on short notice, they can be repurchased by the Trustee with a liquidity facility such as a Letter of Credit or a Standby Bond Purchase Agreement, rather than obligating the Issuer to advance such a substantial amount of money on short notice).
The documentation required to be provided at or prior to the Closing varies depending on the type of Credit Enhancement or liquidity facility. A Guaranty is a promise to pay specified amounts by a Guarantor (e.g., a corporate parent to the Borrower in the context of a Conduit Financing). A Guaranty is typically documented with a document known as the Guaranty agreement. If there is a Letter of Credit or a Guaranty, an additional document called a Reimbursement Agreement may be included, as well as the Letter of Credit and the Guaranty itself. A Reimbursement Agreement sets out the terms of repayment by the Issuer or the Borrower to the bank providing the Letter of Credit of any amounts advanced under the Letter of Credit or to the Guarantor of any amounts advanced under the Guaranty. A Reimbursement Agreement also typically contains financial covenants and other conditions for the Letter of Credit or the Guaranty to remain in effect. If a financial guaranty policy or Bond Insurance Policy is purchased for a Bond Issue, a form of the financial guaranty policy or Bond Insurance Policy is typically included in the Offering Document and the actual policy is provided by the Bond Insurer at or prior to the Closing. In each case, certificates and/or opinions may be required of the credit enhancer and/or its counsel as to the enforceability of the Credit Enhancement.
In a private placement, the agreement between the issuer and a lender (e.g., a bank) pertaining to the loan of the bond proceeds to the issuer. In conduit financings, the agreement between the borrower and the issuer pertaining to the loan of the bond proceeds to the borrower.
Amending or supplementing a preliminary official statement or an official statement, typically to provide information about new developments or updated information affecting the issuer, the conduit borrower, or the bond issue.