Private Activity Bond (PAB)
The term used in the Code to describe any bond issued as part of a bond issue that meets both of the private business tests or meets the private loan financing test.
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Exempt Facility Bonds
Section 142 of the Code permits Private Activity Bonds to be issued as Tax-Exempt Bonds for the purpose of funding many categories of exempt facilities that are specified in Section 142(a) of the Code. Common categories of exempt facilities financed with Tax-Exempt Bonds include airports, solid waste disposal facilities (e.g., landfills) and residential rental projects (commonly referred to as multifamily housing). Each category of exempt facility has specific requirements to qualify for Tax-Exempt Bond financing. Subject to limited exceptions, at least 95% of the Net Proceeds of an exempt facility Bond Issue must be used to provide the exempt facility. Expenditures that qualify as being used to provide an exempt facility include amounts paid or incurred that qualify as capital costs of the facility. These costs are commonly referred to as “good” costs. An exempt facility includes land (although there are certain limits on the ability to finance land with Private Activity Bonds issued as Tax-Exempt Bonds), buildings or other property that is “functionally related and subordinate” to the exempt facility.
See Also
Volume Cap
A requirement contained in Section 146 of the Code that private activity bonds (PAB) (with certain exceptions) issued as tax-exempt bonds obtain an allocation of volume cap from the state in which the project is located prior to the issuance of the bonds.
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Bullet Maturity
A single, fixed principal payment at maturity with no mandatory sinking fund redemption feature.