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MBFC Primary GO Zone Bond Issuer for Mississippi Bonds

Most GO Zone bonds in Mississippi will be issued through the Mississippi Business Finance Corporation (the “MBFC”), a public, nonprofit corporation formed by the State to assist and encourage economic development within Mississippi. GO Zone bonds will be issued through two MBFC programs under which the MBFC issues bonds to the public or to private investors raising funds to lend to qualified businesses. Bonds issued under the general “industrial development revenue bond program” (“201 Bonds”) are available to finance most any new or expanding industrial enterprise within the state. Bonds issued under the Rural Economic Development Program (“RED bonds”) are limited to qualifying enterprises engaged in manufacturing, processing, warehousing and distribution, and telecommunications and data processing. The MBFC will not finance gaming enterprises or condominium development.

In addition to favorable tax-exempt financing rates, GO Zone bonds issued through the MBFC afford the company significant Mississippi tax savings. Projects financed by either 201 Bonds or RED bonds are eligible for sales and use, but not contractors’ tax, exemptions for purchases made with bond proceeds and, subject to local government approval, city and county property tax exemptions for up to 10 years for real and personal property financed with the bonds. The property is not exempt from school taxes. Owners of projects financed with RED bonds are also entitled to a partial Mississippi income tax credit based on the debt service paid on the bonds.

GO Zone bonds will be sold to the public through an underwriter or privately placed with institutional investors. Generally, the MBFC will select the underwriter or bond purchasers that you recommend as long as they are otherwise qualified to act in that capacity. The bonds are not “bank qualified,” so commercial banks may have limited appetite for them.

The MBFC does not provide credit support for the bonds. Therefore, if the bonds are publicly sold, the bonds must be secured by a direct pay letter of credit issued by a bank with an investment grade rating. The letter of credit bank will require you to meet their credit standards just as any commercial lender and may require you to secure the letter of credit with the property being financed, personal guarantees or other security. Letters of credit will not be required if the bonds are privately placed, but the bond purchaser will likely require similar security for the bonds.

The bonds will bear interest at floating or
fixed rates determined by the prevailing market at the times the bonds are issued. Tax-exempt rates are generally 1-2 percent lower than taxable rates. The maturity of the bonds cannot exceed 25 years for RED bonds or 30 years for 201 Bonds. Also, the average weighted maturity of tax-exempt bonds cannot exceed 120% of the average useful life of the property financed. The specific terms of the bonds are typically established through your negotiations with the underwriter or purchaser of the bonds.

If the MBFC approves your project, its Board of Directors will induce the project at a regular monthly board meeting, generally held on the second Wednesday of each month. This inducement marks the date of the “official action” indicating the Board’s intention to finance the project with bonds. Bond proceeds may then be used to pay or reimburse costs of the project incurred up to 60 days prior to the date of the official action. For this reason, it is important to induce the project before you begin incurring significant project costs.

At a subsequent meeting, the MBFC Board will approve the bond documents and sell the bonds to the bond purchaser. The bonds must be sold within 18 months after inducement, but in most cases, the entire process is completed in a much shorter time, often in as little as 8 to 12 weeks.

An important step in issuing GO Zone bonds is requesting bond allocation from the Mississippi Development Authority (the “MDA”) and the Governor. Under MDA guidelines, the MDA will consider projects up to $20,000,000 on a first-come, first-served basis based on a limited review. Projects over $20,000,000 will be reviewed on a case-by-case analysis based on location, number of jobs, payroll, total investment and type of business. Projects over $200,000,000 may be limited to 50% of total project costs up to a maximum allocation of $250,000,000.

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