1. Agenda Introductions Overview of Tax Exempt Bonds
North Carolina Specifics
Tax Credits
Types of Transactions
Sample Transactions
Questions / Discussion

2. The Players Issuer - governmental unit that issues bonds
Purchaser – in privately placed deal, entity or bank that purchases bonds directly
Underwriter - investment banking firm that structures the deal and finds buyers
Trustee - bonds are sometimes issued under a trust indenture
holds proceeds pending disbursement for construction costs
collects debt service payments from Borrower and pays to bondholders
Bond counsel – oversees entire process and issues opinion that bonds are tax-exempt
Underwriter’s counsel - prepares disclosure document to sell bonds to the market place - “Official Statement” if publicly sold through an underwriter
Borrower’s counsel - looks out for Borrower’s interest; generally does real estate work and opinion
“Taxable tail” - if combination of bond proceeds (as approved for volume cap) plus equity from tax credits not enough to construct project, the issuer may issue additional taxable debt at the same time so long as financially feasible
Issuer’s counsel – looks out for issuer’s interests
Purchaser’s counsel – represents purchaser of privately placed bonds
Rating Agency

3. Tax Exempt Bonds – What are they?
Bond (debt) issued by a governmental entity (state or local housing authority, county or city - the “Issuer”)
Proceeds are loaned to private entity (either for-profit partnership/LLC or nonprofit entity - the “Borrower”)
Borrower uses those dollars to acquire, construct and/or rehab and equip “multifamily residential rental housing”
Bonds are “private activity bonds” under Section 142 of the Internal Revenue Code - the “Code”

4. In North Carolina Who can Issue?
NCGS 160A-456 provides that “any city council may exercise directly those powers granted by law to …municipal housing authorities, and may do so whether or not a …housing authority is in existence in such city.”
Under NCGS Ch. 157, housing authorities have the power to issue bonds to “provide grants, loans, interest supplements and other programs of financial assistance to public or private developers of housing for persons of low income, or moderate income, or low and moderate income.”
“Persons of low income” are those whose annual income, when adjusted for family size, is not more than 60% of local area median income as determined by HUD

6. What are the Rules?
Rules focus on the use of the proceeds of the bonds and use of project constructed with those proceeds
95% of proceeds must be used for capitalizable costs
Acquisition of existing property permitted only if an amount equal to 15% of purchase price is used for rehabilitation (structural upgrade or replacement of equipment, renovation of kitchens, etc.)

7. Income Restrictions Either: Or:
20% of units must be set aside for individuals whose income is 50% or less of area median income (“AMI”)
Or:
40% of units must be set aside for individuals whose income is 60% or less of AMI
Income limits based on HUD guidelines; subject to family size adjustment
Income determination must be made at least annually
Income of low income tenant continues to qualify until income reaches 140% of AMI; thereafter next available unit must be set aside for low income resident
Restrictions apply for the LONGER of 15 years or life of bonds
General rule is no students (some exceptions)
Income restrictions apply to entire project; not done on building by building basis

8. Tax Credits
Under Section 42 of the Code, if at least 50% of the basis of the project is financed with Section 142 tax-exempt bonds, 4% tax credits automatically apply
No allocation of 4% tax credits, except in the sense that NCHFA recommends projects to which TRAC allocates volume cap (and 4% tax credits come with it)
Rules are similar but not exactly the same
Short term financing still produces tax credits

9. Volume Cap
Volume cap required for many types of tax exempt bonds - Housing, Industrial Development, Solid Waste, Student Loans, Airports, Docks and wharves; each state determines allocation method amongst uses
Underutilization
2007, states used 58% of volume cap
2014, states used 38% of volume cap
“Double Bang for the Buck in Housing” - TAX CREDITS
Credits are as of right, NOT allocated
Can finance 25% to 45% of the development costs
Each $1.00 of Unused Volume cap = $.50 Federal Housing Subsidy is Lost
400,000 multifamily starts in 2015 vs. 90,000 in 2009

10. Volume Cap in NC
Allocation (2016) = greater of $302.88M or $100 per resident; North Carolina has more than $1 billion in volume cap
The North Carolina Tax Reform Allocation Committee (“TRAC”) allocates volume cap generally on a first come first served basis
Allocations to affordable housing transactions made based on recommendations of NC Housing Finance Agency (NCHFA)
NCHFA reviews applications in two rounds (January, same timing as 9% tax credit deals, and a separate July round)
Once allocation awarded, developer has until the end of the calendar year to get the bonds issued
If the deal can’t get closed, TRAC and NCHFA do not permit carry forward but instead will “swap out” the following year’s cap (i.e cap for 2015 cap)
On occasion have carried forward twice, but needs to be extenuating circumstances

11. Types of Transactions Rehab with Minimal or no Relocation
FHA 221(d)(4)
FHA 223(f) LIHTC PILOT
Freddie Mac TEL
Fannie Mae MTEB
Rehab with Relocation
New Construction

12. Options to Consider FHA Freddie Mac Fannie Mae
Direct Placement with Financial Institution

13. Recent Bond Transaction Structures with Sources & Uses

14. Transaction Costs Underwriter / Investment Banker Legal Counsel
Rating Agency
Seller/Servicer
Issuer
Remarketing Agent
Credit Enhancement
Liquidity Provider
Interest Rate Cap Provider
Miscellaneous
Trustee

15. Panelists
“The Attorney” “The Banker” Mary Nash Rusher Mahesh Aiyer McGuire Woods Citi Community Capital “The Equity Investor” “The Accountant” Darren Swanson Marshall Phillips Red Stone Equity Partners CohnReznick LLP