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Tax-exempt
bond financing typically provides higher investment leverage than a
typical commercial bank financing or institutional placement because the
bond financing is based upon the demonstrated debt service coverage the
investment provides. That's right. The bond financing is
based upon a stated debt service coverage ratio (e.g.: 1.25:1.00 for a
multifamily housing transaction) being applied to current capital market
rates for similar projects. The lower the interest rate in fact
is, the higher the borrowing leverage.
Most
floats take a minimum of 90 days to close because:
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Initial
hearing. An initial hearing of a bond inducement resolution
must be conducted by the regulatory entity (usually the state's bond
commission); then
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First
Approval Hearing. The financing plan is reviewed and an
initial vote is made. If approved, the next step is the final
hearing. This step requires at least 30 days from the date of
the initial hearing.
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Final
Hearing. The financing plan is submitted and a final vote is
taken. If approved, the investment bankers can then syndicate
the bond offering (sell into the capital markets). This
meeting is scheduled at least 30 days after the first approval
meeting and then requires another 15 to 30 days to complete.
To
learn more about the efficacy of this type of financing being applied to
your business, please contact RMC.
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