Midwestern Disaster Area bonds for PCI – Q and As


Last week, I had a citizen inquire about Linn County issuing bonds for the PCI medical mall project.  I could not answer the citizen’s questions so I asked a local attorney for answers.  Here are the questions and answers:
1. What is the County’s role in the Midwestern Disaster Area bonds?
The County does not guarantee them with tax dollars.  The County serves as the “conduit” issuer pursuant to Iowa Code Chapter 419. In this role, the County is the necessary governmental body in the transaction as part of the tax-exempt bond issuance process (a governmental body must be the issuer to permit tax-exemption on the bonds). The County has no liability for any payments due on the bonds and the governing documents make it clear (as does Chapter 419) that the only funds available to repay the bonds are funds from the project and its owners / guarantors.  The County is in no way liable for any payments on the bonds (thus, no future taxes or assessments or other County funds will be used to pay debt service on the bonds). In summary, this is basically a commercial loan transaction from the bank (bondholder) to the borrower with the County acting as the necessary governmental issuer at the inception of the deal.  
Prior to issuance, the project must receive an allocation of authority to issue the Midwestern Disaster Area (“MDA”) bonds from the Iowa Finance Authority. Notwithstanding the MDA nature of these bonds, the process under Chapter 419 is similar to other non-MDA conduit bond issues for manufacturing projects.  The difference is the MDA law allows a broader category of projects to access tax-exempt bonds.
 
2. What happens if someone defaults?
If there is a default in payment, the bank (bondholder) will look to its negotiated security in the deal including any mortgage, guaranties, and security interest in revenues of the project. The negotiated security under the bond and loan documents is the sole recourse for the bank on the transaction. Pursuant to the documents, the bank has no ability to seek funds or a tax levy from the County.
If you have additional questions, I will attempt to provide answers on this blog.  The Linn County Board of Supervisors is scheduled to hold a public hearing on the issuance of the bonds to PCI at 10am on June 15th in the Boardroom at Linn County West.
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2 Responses to “Midwestern Disaster Area bonds for PCI – Q and As”

  1. lcauditor Says:

    Lest you think that PCI is about to receive favorable treatment from the Linn County Board of Supervisors, the following entities have benefitted from the County’s issuance of $36,949,200 of Midwestern Disaster Area bonds:

    04-06-11 Lehman, Allsop & Evans Ltd. Co. Proj. $2,500,000

    02-09-11 Frey Vet Hospital Proj. 2,100,000

    12-22-10 TrueNorth Real Estate, LLC Proj. 7,000,000

    12-01-10 Edgewood Station, LLC Proj. 2,868,000

    12-01-10 TEG Property I, Inc. Proj. 3,600,000

    11-24-10 Stonefield Investors, LLC Proj. 1,033,200

    11-10-10 1815 First Ave. Development, LLC Proj. 1,500,000

    11-03-10 Staco Corp. Proj. 1,200,000

    11-03-10 1815 First Ave. Development, LLC Proj. 1,350,000

    11-03-10 Stonefield Investors, LLC Proj. 1,500,000

    11-03-10 TEG Property I, Inc. Proj. 4,000,000

    10-13-10 Ahmann Properties, Inc. Proj. 2,100,000

    07-28-10 Progressive Agricultural Services Inc. Proj. 1,500,000

    06-09-10 Edgewood Market, LLC Proj. 3,500,000

    05-19-10 Lazarus Investments, LLC Proj. 1,198,000

    Like

  2. lcauditor Says:

    Read Steve Gravelle’s story on Midwestern Disaster Area bonds at http://thegazette.com/2011/01/17/little-known-or-used-bond-program-helps-nearly-any-business/

    Like

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