Anatomy of a VEHBFA Financing:
For those borrowers, and even some repeat borrowers, issuing tax-exempt debt can be a daunting task. VEHBFA staff and consultants are available to help you navigate through the bond process. It is the Agency’s goal to make issuing tax-exempt debt as simple and painless as possible. Here are the recommended key steps to a successful financing. In some cases, the steps are independent of each other and in others the steps may occur simultaneously.
Step 1: Initial Meeting
Once a project has been defined and prior to submitting an application, a borrower is encouraged to contact the Agency to discuss the potential financing, the approval timeline and the potential closing date.
Initial meeting discussion items may include:
- Financing purpose
- Financing amount
- Financing schedule
- Members of the finance team
- Financing cost of issuance
- Capital campaign restrictions
- Rating agency process
- Credit enhancement
- Post Issuance Compliance
Step 2: Financing Team
The borrower will need to engage a team of consultants to assist with the bond issue. These may include:
- Legal counsel
- Financial advisor
- Arbitrage rebate consultant
- Trustee
- Investment Banker/Underwriter
Step 3: Application
The borrower submits an application (click here) to VEHBFA. The Application asks for information about the borrower and its services, a project description, the proposed financing structure, a listing of the consultants the borrower intends to use; historical and pro-forma financial information and key operating statistics.
If a healthcare borrower, a Certificate of Need or a Certificate of Approval letter must be appended to the Application. If a Certificate of Need/Approval is not required for the financed project, the Agency having jurisdiction over the borrower must submit a letter to VEHBFA stating that the project being financed is not covered under the Certificate of Need/Approval process.
Step 4: Structuring the Bond Issue
The borrower will need to make decisions regarding the structure of the financing. This includes:
- Sizing the project, determining the amount of equity and bond financing required, and the desired amortization schedule
- If the Cost of Issuance will exceed 2.0% of the bond/loan proceeds, a decision of how those excess costs will be covered
- If determined necessary:
- Engage a rating service
- Credit enhancement
Step 5: Financial Review
From the application, data and reports provided, VEHBFA’s financial advisor will analyze the financing and make a recommendation to VEHBFA’s Board as to the need for the project and the borrower’s ability to repay the debt.
Step 6: Legal Review
VEHBFA’s bond counsel will work with the borrower’s and other legal counsels to develop the appropriate legal documents. A tax certificate questionnaire will need to be filed with bond counsel. Bond counsel will also draft the required VEHBFA Board resolutions and public hearing notice.
Step 7: Public Hearing
A TEFRA hearing is a public hearing that must be held prior to tax-exempt bonds/loans being issued. The hearing provides the public with an opportunity to receive information about the project and to provide comment.
Step 8: Board Approval
At a duly warned Board meeting, the borrower presents information about itself, project details and updates on its programmatic and financial activities. VHBFA’s financial advisor and bond counsel brief the Board on the requested financing and provide their recommendations.
If the financing is approved, the Board votes to certify to the Governor as to the necessity of the borrower’s project and its financial capacity to repay the debt.
Conditions that should be met prior to Board approval include:
- Legal documents in substantially final form
- A determination of how the bonds will be sold – public or private placement. If a private placement, then a term sheet approved by the borrower and the lender must be made available to the Board
- Results of the TEFRA hearing
- Completion of due diligence by VEHBFA staff and its advisors
- Finalization of the structure of finance
Step 9: Marketing the Bonds
The marketing of bonds in advance of a public sale creates demand from various types of investors and leads to a successful sale. An underwriter/banker with a strong distribution network is instrumental in developing a broad investor base of institutional and retail buyers. Increased demand usually leads to a lower overall cost to the borrower.
Step 10: Governor’s Approval
Subsequent to Board approval and TEFRA hearing, the Governor is responsible for approving the financing request. A financing cannot proceed without the Governor’s approval.
Step 11: Closing
After all approvals have been received, a closing is scheduled where the legal documents are executed and exchanged between all parties to the financing. Loan proceeds are usually available the day of closing.
A VEHBFA Board meeting can be held approximately 6 weeks after receipt of a completed application and accepted term sheet. The closing can be scheduled 30 days after the Board meeting.