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Development Financing
Frequently Asked Questions

1. What Is An IDB?
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An Industrial Development Bond (IDB) is the common name for tax-exempt economic development revenue bonds issued by the Nebraska Investment Finance Authority (NIFA), cities and counties to finance industrial development. Bond proceeds are loaned to a private party (borrower) which is then solely responsible for payment of interest and principal to the bondholders. There is no state or other governmental financial support, either direct or indirect for any NIFA bonds.

Interest on qualifying bonds are exempt (subject to certain exceptions) free from federal income tax which results in a lower rate for the borrower.


2. Why Use Industrial Development Bond Financing?
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Tax-exempt Industrial Development Bonds have, in the past, had an all-in annual borrowing cost (including all letter of credit fees) of several percentage points below prime.


3. What is a “Taxable Tail” Financing?
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Some projects may have costs, such as used machinery, planned expansion space, etc., which will not qualify for tax-exempt financing.

Financing of these costs through issuance of NIFA’s “Taxable Tail” bonds in conjunction with the tax-exempt portion may provide an alternative means of completing the total project financing in a single package with the savings associated with the blended rate.


4. What Types of Projects Are Eligible For IDB Financing?
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The proposed financing must be for a manufacturing or processing project. Retail, non-manufacturing, commercial and service projects are not eligible. Bond proceeds may be used to:

  • Acquire land,

  • Construct new facilities,

  • Purchase and rehabilitate existing facilities, and

  • Purchase new machinery.

If an existing facility is purchased, used equipment that is part of the facility may be included in the bond issue. However, an amount equal to 15% of bond proceeds must be spent for rehabilitation of the project.

Inventory, warehousing and working capital are not eligible uses for tax-exempt bond proceeds. Taxable bonds may be used in combination with the tax-exempt IDBs for these types of costs.


5. Are there limits related to project size?
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Yes; IDBs can be used for up to $10 million for a single industrial project. However, there is also a restriction of $20 million on the total capital expenditure by the company in the local jurisdiction in which the financed project is located. This $20 million cap includes all expenditures which can be capitalized under generally accepted accounting principles, even if they are expensed rather than capitalized, and including those funded from sources other than bond proceeds. The period over which these capital expenditures are measured begins three years before and ends three years after the sale of the bonds.

While there is not a stated minimum project size for participation in the Program, projects less than $1 – 1.25 million often find that the issuance costs, including a credit enhancing letter of credit, relative to the size of the borrowing, may make other financing options more attractive.


6. Creditworthiness
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Each borrower stands upon their own creditworthiness. It is important to emphasize that there is no governmental financial support, either direct or indirect, provided by NIFA or any other governmental entity. All Industrial Development Bonds sold by NIFA on the public markets must be credit enhanced (“AA or better), which will usually consist of a direct pay letter of credit for the full amount of principal plus 125 days' interest from a AA or better rated bank.

As an alternate to the sale of the bonds on the national tax-exempt markets, the borrowing company may arrange a "private placement" of the bonds with an institutional investor, utilizing NIFA’s Private Placement letter.


7. What Is An “Exempt Facility” Bond?
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“Exempt facilities” is a catch-all term for projects for which tax-exempt bonds may be issued, but which don’t fit neatly in other categories. Some of the more important are solid waste disposal, sewage treatment, docks and wharves, local furnishing of electricity and mass commuting facilities.


8. How does an “Exempt Facility” Bond Differ from an IDB?
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The difference between IDBs and “exempt facility” bonds is that the $10 million capital expenditure limitation does not apply to “exempt facilities” projects. There are, however, other special rules applicable to certain of these categories.


9. Who Are The Participants In The Financing Process?
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Key participants on the financing team include:

  • Borrowing company

  • Letter of credit bank or institutional investor purchasing the bonds

  • NIFA, as issuing authority

  • Bond counsel

  • Underwriter (for public sales and some private placements)

  • Trustee (if applicable)

The roles of each of the participants are:

Nebraska Investment Finance Authority (NIFA). NIFA acts as the issuing authority for the bond issue. NIFA approves the Intent Resolution, which allows the project being financed to be started prior to bond issuance, as well as the bond resolution and other documents required for bond sale. NIFA will also perform certain required actions, such as scheduling and conducting the required public hearing, and the required allocation from the state’s volume cap.

Bond Counsel. Bond counsel is a legal firm with special expertise in municipal bond and federal tax law. Bond counsel provides the legal opinion that interest on the bonds is tax-exempt under federal law, and that the bonds are valid and binding obligations of the Issuer. Bond counsel also prepares much of the bond documentation. Bond counsel is selected by the borrowing company, subject to NIFA’s approval.

Underwriter. The primary role of the underwriter is to purchase the IDBs from NIFA, and to resell them on the national bond market.

Trustee. The trustee is a financial institution which provides fiduciary and accounting services for the bondholders. The trustee will handle all funds associated with the bond sale, receiving all the monies generated from the bond sale and disbursement to the borrowing company. The trustee receives all principal and interest payments from borrowing the company and makes payment to the bondholders on predetermined dates.

Letter of Credit Bank (LOC). The LOC bank is one whose long-term unsecured credit is rated investment-grade by either Moody's or Standard & Poor's. NIFA requires a AA rating or better. Through the issuance of its letter of credit, the LOC bank provides the credit enhancement, and bears the credit risk of the borrowing company. The LOC bank also acts as loan servicer after the bond proceeds have been disbursed. If the bonds are placed with an institutional investor, a letter of credit may or may not be required.

Institutional Investor. An alternative to a public sale is a private placement of the bonds with an institutional investor. An institutional investor will likely apply the same credit standards a bank would in considering issuance of a letter of credit. Since the number of required participants is fewer than for a public offering, issuance costs for a private placement will generally be less. The interest rates will generally be higher than can be achieved by a public sale, however.


10. What are the Costs Associated with an IDB?
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The following costs are typically involved an IDB financing.

    a. Issuer Fees. NIFA charges a non-refundable application Fee of 1/16 of 1% of the bond amount ($1,000 minimum) and an issuance fee of 1/8 of 1% of the bond amount ($1,000 minimum).

    b. NIFA Legal Counsel. This is usually an hourly plus expense quotation. This fee will vary depending upon the complexity of the transaction.

    c. Bond counsel fees, borrower counsel fees, and bank counsel fees may not be on an hourly expense.

    d. Assumption Fee of 1/8 of 1% of outstanding bond balance ($1,000 minimum).

    e. Bond Cap Allocation Fee of $150.

    f. Legal Notice Fees.

    g. Printing Costs. If the bonds are sold publicly, there will be a printing charge for the Official Statement.

    h. Trustee Fee. If the bonds are sold publicly, a trustee fee of approximately ¼ % will be charged at closing, as well as on-going. A privately placed issue, depending on the details of the transaction, may require lessor trustee fees..

    i. Remarketing Agent Fee. If the bonds are publicly sold as variable rate bonds, a Remarketing Agent will be required. This is usually an annual fee.
In addition to the costs listed above, the borrowing company may incur the following costs, which should be taken into consideration:

    a. Letter of Credit (LOC) costs and fees (if applicable). These will normally consist of a letter of credit issuance fee, ongoing LOC fee, as well as the bank's legal and out-of-pocket costs. These fees are negotiated directly between the borrowing company and the LOC provider. They will depend upon the borrower company's overall relationship with the LOC bank, as well as the bank's policies in this regard.

    b. Borrowing company internal costs. As in any financing, decisions and due diligence requirements specific to the individual borrowing company will require management time and there will be an opportunity cost associated with this.

    c. Legal and Accounting. As in any financing, the company will require these professional services from its regular legal advisors and accountants.

    d. Annual Costs. NIFA does not charge an annual fee for the issuance of IDBs. The borrowing company will be responsible for the following annual costs:
    • Borrowing company internal and other direct costs

    • Annual LOC fee (negotiated directly between the LOC bank and the borrowing company).

    • Annual bond expenses, which would include; annual Trustee fee and expenses (if applicable), remarketing and paying agent fee (as applicable), and miscellaneous costs.


11. What Are The Steps in The Process?
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Following is an outline of the steps that a borrowing company will go through in the issuance process for an Industrial Development Bond financing. Although these are listed as discrete steps, in actual practice many of them will occur simultaneously. The time period between the initial contact between NIFA and the potential borrower and actual bond sale will vary depending upon the status of the project planning as well as other factors. While it could take as little as two months, this time frame would probably be longer, depending upon the progress of the project being financed.

    a. Preliminary Discussion and Application. Representatives of the company seeking funding should contact NIFA to discuss details of the proposed project. Contact with NIFA staff can be made through the company's local economic development organization, banker, bond counsel, or directly, as appropriate. If the project appears to meet eligibility requirements, the company should then submit an application to NIFA with the application fee. At the appropriate NIFA board meeting, the NIFA Board will consider adoption of an Intent Resolution.

    b. Credit Enhancement/Institutional Investor. Concurrently, the company should begin negotiations for either the issuance of a letter of credit from an investment grade bank in support of the bond issue or the purchase of the bonds by a qualified institutional investor. A commitment letter from the LOC bank/institutional investor will be required before the issuance process can be started.

    c. Intent Resolution. Following submission of the application to the Authority by the company, the board will consider passage of an Intent Resolution. This is a very important step. It does not commit NIFA to issue the bonds; however, all eligible costs incurred after a date 60 days prior to the Intent Resolution's approval may be funded through a tax-exempt bond issue if and when the bonds are issued. Costs incurred before that date cannot be so recouped.

    d. ”All Hands” Meeting. As soon as practicable after passage of the Intent Resolution and receipt of the LOC/institutional investor commitment letter, either NIFA or the underwriter will schedule an “all hands” conference call to discuss what needs to be done by each of the participants and set a timetable.

    e. Documentation. Bond counsel and underwriter/institutional investor’s counsel will start working on the bond documents (the loan agreement, trust indenture, bond purchase agreement and others) and circulating them to the participants for comments.

    f. Bond Cap Allocation and Public Hearing. The applicant will submit an application for required bond cap and request an approving resolution from NIFA. NIFA, at the request of Bond Counsel, will also arrange for publication of the legal notices for the required public hearing.

    g. Bond Resolution and Closing. NIFA Staff will conduct the required public (“TEFRA”) hearing. Following that hearing, the board will, at its regular meeting, consider the Bond Resolution approving the sale of the bonds. Closing occurs after the bond sale. At closing, the bond proceeds deposited with the Trustee (if applicable) for disbursement to the borrower.


12. What Else Do I Need To Know?
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Financing of Costs. The first step in the bond issuance process is the issuance of an Intent Resolution (frequently known as an “Inducement Resolution”) in support of the project by NIFA. Issuance of this Resolution does not commit either the company to proceed further with the project or NIFA to ultimately issue the bonds. All eligible costs which are incurred after a date 60 days prior to the issuance of an Intent Resolution may subsequently be recouped from bond issuance. Costs incurred before that date cannot. Because of this “date stamp” effect, it’s important to have the Intent Resolution issued as early in the process as possible.

Private Activity Bond Cap Allocation. Federal tax law only permits a limited dollar volume of certain types (private activity) of tax-exempt bonds to be issued in Nebraska in a given year. This dollar amount of “permission” is generally referred to as bond cap. Please note this is only an authorization to issue bonds on a tax-exempt basis; there are no actual dollars involved.

In addition to IDBs, “exempt facilities”, and other private activity bonds, student loan bonds are subject to the state’s bond cap.

Required Disclosures. Amendments to Rule 15c2-12 of the federal Securities Exchange Act imposed new disclosure requirements on “obligated parties”, such as the borrower. These amendments require the continuing annual disclosure of key financial and operating data and timely disclosure of certain material events when they occur.


13. Would you like these FAQs in an easy to print format?
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Download FAQs here.





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