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Bond Financing - Taxable & Tax-Exempt

Federal and state laws grant municipalities, municipal authorities, nonprofit organizations, and, in more limited circumstances, owners of certain manufacturing and “exempt” facilities (including airports, docks, mass commuting facilities, waste disposal facilities, and high-speed rail facilities) the ability to borrow money for capital improvement and other projects on a tax-exempt basis.  This means that the interest earned on the debt is not taxable to the lender for state and federal income tax purposes.  As a result of this tax-exemption, lenders are willing to lend at a lower rate of interest, and eligible borrowers benefit from significant interest savings when undertaking important public, charitable, and economic development projects.

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A complex web of laws and regulations, promulgated primarily by the federal government and the Internal Revenue Service, governs what types of entities can borrow and for what purposes on a tax-exempt basis.  Certain types of financings are limited as to types of eligible borrowers, others as to the amount of the borrowing, and still others as to qualified lenders.  The ability of borrowers to re-invest funds borrowed on a tax-exempt basis while waiting for those funds to be utilized for a qualified project is limited by the federal government’s extremely detailed and complicated arbitrage rules.  The use of “Bank Qualified” loans from financial institutions as an alternative to more costly public bond issues is subject to its own set of less than intuitive rules and regulations.  These are just a few examples of the sophisticated issues that must be addressed in order to reap the benefits of a tax-exempt financing.

The attorneys of the Public Finance Section of MacDonald Illig’s Banking & Finance Practice Group carry on an extensive practice representing borrowers, lenders, underwriters, and conduit authorities in navigating the myriad of rules and regulations that govern borrowing on a tax-exempt basis.  Our clients cover the full spectrum of participants in the tax-exempt financing arena, including 501(c)(3) non-profit organizations (such as hospitals, health care facilities, educational institutions, and social service agencies), municipalities, school districts, municipal authorities, convention center authorities, redevelopment authorities, hospital authorities, industrial development authorities, manufacturers, commercial banks, and bond underwriters.

Whether you are a borrower, a lender, or a conduit authority, MacDonald Illig has the bench strength and depth of knowledge and experience necessary to guide you through the maze of regulatory and compliance issues that you will undoubtedly encounter, and to deliver a successful closing of your tax-exempt financing transaction.