Corporate / Government
Direct Obligation Private Placement Bonds
Private Placements are fixed income securities that are not registered with the Securities and Exchange Commission (SEC). As such, private placement bonds are not publicly issued or publicly traded, and as a result are not required to be rated by a credit rating agency.
Private Placement Bonds issued without pledged collateral are called Senior Unsecured Private Placements, and those issued with pledged collateral are Senior Secured Private Placements. The issuer of the bonds is directly and fully responsible for repayment of the notes based on its full faith and credit, so the notes are referred to as Direct Obligation Private Placement Bonds.
Focus is given to bond issuers with investment grade credit ratings from a Nationally Recognized Statistical Rating Organization (NRSRO). Alternatively, issuers without credit ratings from an NRSRO may still be acceptable if they have an NAIC rating of 1 (AAA through A-) or 2 (BBB+ through BBB-).
Loan Structure:- 100% recourse to the issuer and its full faith and credit
- Direct, unconditional, unsubordinated, senior notes (secured or unsecured)
- Up to 100% financing of a property or project costs including soft costs
- Minimal expense deduction (annual trustee fee)
- $15 million to $1 billion
- Typically semi-annual payments
- Up to 15 year bond term
- Interest only or fully amortizing
- 30/360 interest calculation
- Yield Maintenance at U.S. Treasuries plus 50 bps
- Fixed rate locks within 1 to 3 days after bonds are “circled” or placed
- Include loan covenants such as minimum net worth, debt service coverage, etc.
- Working capital
- Mergers and acquisitions
- Debt consolidation or refunding
- Acquisition or construction of property and/or improvements
Construction/Perm
Credit Tenant Lease (CTL) transactions are structured as private placement bonds that focus primarily on the creditworthiness of the tenant and the strength of the lease structure and secondarily on the property type, location and quality of improvements.
Loan Underwriting:
- Up to 100% LTV / no constraint on loan-to-cost
- Minimum 1.00x to 1.05x DSCR
- 0% vacancy allowance
- Minimal expense deductions (annual trustee fee and any lessor expenses)
- Investment grade or equivalent tenants
- All property types financed
- Non-real estate collateral can also be financed (i.e. equipment, tenant improvements, etc.)
Loan Types and Lease Structures:
- Leased fee interests in real estate comprised of land and improvements
- Leased fee interests in ground leases
- Leasehold interests with either subordinated or unsubordinated ground leases
- Lease can be Modified Gross, NN (double net), NNN (triple net) or Bondable
- Leases with remaining terms of typically 10 to 30 years or longer
Loan Terms:
- $5 million to $500 million
- Fixed interest rate
- Non-recourse
- Loan term coterminous with the remaining lease term
- Fully amortizing or balloon payments with or without RVI (residual value insurance)
- 30/360 interest calculation
- Yield maintenance at U.S. Treasuries plus 50 bps
Credit Tenant Lease Bond Finance
Combined Construction and Permanent Bond:
- Bond investor takes construction risk and charges a construction fee for the added risk and complexity
- Borrower assigns a GMP contract and a surety bond for performance and payment to the bond investor
- Interest-only payments are made during construction
- May be structured either as a single upfront funding or as a staged funding
- An approved construction monitoring firm oversees the draw request process and reviews the third party engineering inspection reports monthly
- The interest rate is locked at CTL funding, thereby allowing borrower to avoid interest rate risk during construction
“Date Certain” Rent Commencement Date:
- Lease states that rent will commence on a predetermined date regardless of whether a Certificate of Occupancy has been issued or tenant has accepted the premises
- Interest-only payments are made during construction
- May be structured either as a single upfront funding or as a staged funding
- An approved construction monitoring firm oversees the draw request process and reviews the third party engineering inspection reports monthly
- The interest rate is locked at CTL funding, thereby allowing borrower to avoid interest rate risk during construction
Letter of Credit-Backed Credit Enhancement:
- Borrower provides to the bond investor a Letter of Credit (LOC) from an approved issuer
- Proceeds from the CTL financing are funded to the bank providing the LOC
- LOC issuer has a first lien on the property until construction is complete, tenant has accepted the premises, taken occupancy and final due diligence is completed
- The LOC bank administers the construction draws
- After rent commencement and upon receipt of all due diligence, the LOC is released and the first lien on the property is assigned to the CTL bond investor
- Interest-only payments are made during construction
- The interest rate is locked at CTL funding, thereby allowing borrower to avoid interest rate risk during construction
Forward Commitment to Fund:
- Bond investor commits to fund the bonds at a future date
- The interest rate, which is locked upfront, includes a premium in the spread depending upon how far forward the transaction will be funded
- Borrower constructs the project with its own capital sources or procures a construction loan
Government
Government Facilities Finance may be structured as leased real estate transactions, or the governmental body may elect to issue taxable or tax-exempt bonds to finance a project or for the general good of the public.
Program Overview:
- Federal, state, county and municipal
- Taxable and tax-exempt finance structures
- Lease-backed, lease revenue, full faith and credit, and other
- All property types and public uses
