beneﬁt to borrower: beneﬁt to bondholders - · pdf file§ investment agreement...

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Ballard Spahr Andrews & Ingersoll, LLP Washington, DC


§ Anotherfinancingsourceforaffordablehousing§ Bondholdersarethelenders§ BenefittoBorrower:Loaninterestrateisbelowcommerciallendingrate

§ BenefittoIssuer:Canprovidebelowmarketinterestratefinancingforaffordablehousing

§ BenefittoBondholders:§ Interestonbondsisexemptfromfederalincometax§ Interestonbondsisexemptfromstateincometax(forin-statepurchasers)

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§ Acontractbetweentheissuerandthebondholder§ Adebtinstrument–Apromisetopay


§ LoantoDeveloper§ Bondproceeds($)→Issuer→Developer→Project

§ LoantoLender§ Bondproceeds($)→Issuer→Lender→Developer→Project

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§ Issuer(state;poliIcalsubdivision;orothergovernmentalenItyauthorizedtoissuebonds)§ Trustee(holdsassetssecuringBonds;makespaymenttoBondholdersfrommortgageloanpayments:exerciseremediesifadefault)§ ProjectOwner(Borrower)§ BondCounsel(draNsbonddocumentsanddeliverstaxopinion)


§ Underwriter(InvestmentBankermarketstheBonds)§ CreditEnhancer(guaranteespaymentoftheBonds;bearsulImateproject“risk”)§ MortgageBanker(DUSLender/Underwriter)–typicallyevaluatesfinancialstrengthofproject,dictatesstructureofBondsandactsasmortgageloanservicerforGNMAtransacIons.§ FinancialAdvisortoIssuer(helpsIssuerevaluateBondtransacIonandnegoIateswithUnderwriter)

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§ InvestmentAgreement(“GIC”)Provider(guaranteesspecifiedrateofreturnonmoneysinvestedtosecureBonds)§ CounseltotheParIes§ DTC(enItythatholdsBondsinbook-entryform)§ RaIngAgency(providescreditraIngforBondsbasedoncreditraIngofCreditEnhancerorGIC)


§ Bonds§ Indenture§ LoanAgreement/Note§ RegulatoryAgreement§ CreditEnhancementDocuments§ CreditEnhancementAgreement§ ReimbursementAgreement§ DeedofTrust/Mortgage

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§ PreliminaryOfficialStatement(“POS”)§ OfficialStatement(“OS”)§ BondPurchaseAgreement(“BPA”)§ DisclosureAgreement§ InvestmentAgreement(“GIC”)§ ClosingDocuments§ CerIficates§ Opinions


§ BasicCreditEnhancementsforRatedBonds§ Le]erofCredit(DirectPay;Standby)§ MunicipalBondInsurance(MBIA;FSA;FGIC;AMBAC)§ SuretyBond§ FHA,GNMA,FNMA,FHLMCInsured/Guaranteed§ FHA-Insured/RiskSharing

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BONDHOLDERS TRUSTEE

ISSUER

PROJECT OWNER

PROJECT

Loan Agreement/Note/Mortgage

$ Principal and

Interest

$

$ Bond Proceeds

Loan Agreement/Note/ Mortgage (security for Bonds)

$ Loan Payments

$ Bond Proceeds

$ Cash Flow

LOAN TO DEVELOPER STRUCTURE (No Credit Enhancement)


BONDHOLDERS TRUSTEE

ISSUER

PROJECT OWNER

PROJECT

$ Principal and

Interest

$ Proceeds

$ Proceeds

Mortgage/Note/ Loan Agreement

$ Proceeds

$ Cash Flow

LOAN TO DEVELOPER STRUCTURE (Letter of Credit)

LETTER OF CREDIT BANK

Assignment of

Mortgage/Note/ Loan Agreement

Letter of Credit (Letter of Credit Bank bears bankruptcy risks)

$

Reimbursement Agreement

•  Trustee and Letter of Credit Bank are co-beneficiaries under the Mortgage, as their interests may appear •  Letter of Credit Bank bears bankruptcy risk •  Either a remarketing or mandatory redemption when Letter of Credit terminates

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BONDHOLDERS TRUSTEE

ISSUER

PROJECT OWNER

PROJECT

$ Principal and

Interest

$

$ Proceeds

Loan Agreement/ Note/Mortgage

$ Proceeds

$ Cash Flow

LOAN TO DEVELOPER STRUCTURE (Municipal Bond Insurance)

MUNICIPAL BOND

POLICY •  Pursuant to Assignment Agreement, Issuer assigns its interest in Note, Loan Agreement and Mortgage to Trustee (Bond Insurer subrogated to rights of Bondholders and Trustee) •  Bond Insurer bears bankruptcy risk

$ Loan Payments

$ $ Pay in event Developer defaults (Policy insures Bondholders against bankruptcy risks)


BONDHOLDERS TRUSTEE

ISSUER

PROJECT OWNER

PROJECT

$ Principal and

Interest

$ Bond

Proceeds

Loan Agreement/ Note/Mortgage

$ Bond Proceeds

$ Cash Flow

LOAN TO DEVELOPER STRUCTURE (GNMA-MBS or Pass-Through Certificate)

GNMA

LENDER (GNMA Mortgage Banker Servicer)

Mortgage-backed Security (MBS or Pass-through Certificate)

Mortgage/Note

$ payments on MBS

Pass-Through Certificate guarantees loan payments

Mortgage/Note

$

Loan Payments Mortgage/Note

Bankruptcy risk is with GNMA.

$ Bond Proceeds

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BONDHOLDERS TRUSTEE

ISSUER (Mortgagee)

PROJECT OWNER

PROJECT

$ Principal and

Interest

$ Bond Proceeds

$ Proceeds

Mortgage/Note/ Regulatory Agreement

$ Proceeds

$ Cash Flow

HUD RISK SHARING STRUCTURE

HUD/FHA

$ FHA Mortgage Insurance Payments if Borrower Defaults

•  Note is insured under Section 542(c) of the Housing and Community Development Act of 1992 •  HUD and Issuer (state or local housing finance agency) share any net loss as agreed to in Risk- Sharing Agreement: 50% or more (Level 1 Participants); 10% or 25% (Level II Participants) •  Note payments include debt service on Bonds, servicing fee, trustee’s annual fee, Issuer’s annual fee, rating agency fee, rebate analyst fees (MIP, taxes and insurance are paid under Mortgage)

$ Loan Payments

SERVICER (may be the Issuer)

$ Mortgage Loan Payments


§ TypesofBondIssuesforAffordableHousing§ §142(d)MulIfamilyHousingBonds§ NewconstrucIon§ AcquisiIon/rehabilitaIonofexisInghousing§ §501(c)(3)HousingBonds(HousingBondsissuedforthebenefitofnonprofitprojectowners)

§ NewconstrucIon§ AcquisiIon/rehabilitaIon§ AcquisiIon§ GovernmentalBonds(forIssuer-ownedproperIes)

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§ CurrentRefundings(i.e.,issuanceofBondstoredeemwithin90daysexisIngtax-exemptbondsissuedtofinanceconstrucIonoracquisiIonoftheproperty)§ §103(b)(4)(A)Bonds(Pre-1986)§ §142(d)Bonds§ GovernmentalBonds§ §501(c)(3)Bonds

§ AdvanceRefundings(typically,proceedsofrefundingbonds,togetherwithothermoneysasneeded,areputintoescrowtopayprincipalofandinterestonoldbondsastheybecomedueunIlfirstcalldatewhenoldbondsareredeemedinfull)§ GovernmentalBonds§ §501(c)(3)Bonds


§ General:§  residenIalrentalproject(nocondos)§ projectmayincludefuncIonallyrelatedfaciliIes(swimmingpool,clubhouse,tenniscourts,parking)

§ completelivingunit(bathroomandkitchenwithovenandcookingburners(ormicrowave),refrigerator,andsink)

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§ availabletomembersofthegeneralpublic(mayberestrictedtoelderlyforelderlyhousing)

§ notransienthousing§ nostudents(withsomelimitedexcepIons)§  significantlimitaIonsonassistedliving§  lowtomoderateincometenantrequirements§ GovernmentalBondsforHousing

§ nofederaltaxrequirements:provisionfor“housing”mustbewithinthestatutorypurposeandauthorityofIssuer


§ IssuerStatutoryBondRequirements§  statutoryauthorizaIontoissuebonds(purposeandauthority)§  formofbonds(e.g.,informaIontoappearonfaceofbond–limitedliabilitylanguage)

§ bondauthorizingresoluIon(informaIontobeincluded)§ organicrequirements(mayimposerequirementsonhowtransacIoncanbestructured)

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§ applicablestatepropertytaxexempIons§ bondvalidaIonrequirements(e.g.,Florida/Georgia)§  statea]orneygeneralapproval(e.g.,Texas)§  lowormoderateincometenantrequirementsand/orrentrestricIons


§ Bankruptcy§  Issuer§ Developer§ CreditEnhancer

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§ NewBondIssuesandRefundings§ ApplicaIonFee§  IssuerFee:Upfront(%ofprincipalamountofBondsissued)§  IssuerFee:Ongoingcompliancemonitoringfee(percentageofprincipalamountofBonds–originalamountv.decliningbalance)

§ Publicpurposesetasiderequirements/rentrequirements


§ Unratedbondissues(largedenominaIons/definiIonof“bigboy”investor/investorle]ers/restricIonsontransferability/protecIonof“widowsandorphans”)

§ PurchasecontractindemnificaIonofIssuerfromdeveloperandunderwriter(liabilityregardingOSandsecuritylaws)

§ LoanagreementindemnificaIonofissuerfromdeveloper(allliabilityassociatedwithproject/environmental/tax-exemptstatusofbonds)

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§ TEFRAPublicHearing§ FederalPublicaIonRequirements§ StatePublicaIonRequirements§ ApprovalofBondIssueby“HighestElectedOfficial”§ ValidaIon(e.g.,Georgia,Florida)§ StateA]orneyGeneralApproval(e.g.,Texas)§ HUDProcess,ifapplicable(e.g.,GNMAcollateralizedBondsandHUDRisk-Sharing)


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§ WIDOWSANDORPHANS§ BIGBOYS§ TERMBONDS§ SERIALS§ FLOATERS§ SINKERS§ BPA


§ POS§ OS§ GIC§ REFUNDING§ TAXABLETAIL§ BOOK-ENTRY§ DTC

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§ RoleofUnderwriter§ Sellsbonds§ AssistswithstructuringtransacIon/“runsnumbers”§ AdvisesastomarketcondiIons§ CoordinateswithraIngagencies/obtainsraIngle]er§ Bidsoutguaranteedinvestmentcontract(“GIC”)§ ObtainsCUSIPnumbers§ CreatesImetable


§ UnderwriterDocuments§ BondPurchaseAgreement(“BPA”)§ PreliminaryOfficialStatement(“POS”)§ OfficialStatement(“OS”)§ BlueSkySurvey§ Underwriter’sCounsel10(b)5opinion

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§ Underwri>ngRelatedDocuments§ ConInuingDisclosureAgreement§ Rule15c2-12CerIficates§ DTCLe]erofRepresentaIons§ SophisIcatedPurchaserInvestmentLe]ers(“BigBoy”le]ers)forunratedbondissues


§ IssuerBusinessIssueswithUnderwriter§ Underwriter’sFee(“Spread”)§ Service§  IndemnificaIon§ ProfessionalRepresentaIons

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§ FactorsforSelec>onofUnderwriter§ Typeoffinancing§ Regionalvs.naIonal§ Retailvs.insItuIonalsalesvs.privateplacement§ Priorhistory/recommendaIons§ negoIatedunderwriIng§ compeIIveunderwriIng§ seniormanager§ co-manager§ firmunderwriIng§ besteffortsunderwriIng§ pricingtheBonds


§ ComponentsofPricingtheBonds§ Discountsandpremiums§ CallprotecIon§ “underwriIngrisk”§ “storybond”

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§ Underwri>ngRelated“HotTopics”§ Rule15c2-12§ OS“deemedfinal”§ ConInuingdisclosureforsecondarymarket

§ MSRBRule-32(deliveryofOStocustomers)§ MSRBRuleG-37(“poliIcalcontribuIons”rule)§ MSRBRuleG-38(“consultant”rule)


§ Underwri>ng“BuzzWords”§ BPA§ POS§ OS§ “storybond”§ GIC§ “BlueSky”§ “BigBoy”le]ers§ DTC§ “bookentry”§ CUSIP