1. Build America Bonds (“BABs”)
Build America Bonds (“BABs”)
Presentation Slides -
DAC Bond Webinar - Apr 29, 1:00 PM EST
11/10/2018
Confidential & Proprietary

2. Build America Bonds (“BABs”)
American Recovery and Reinvestment Tax Act of 2009
BABs are Taxable Tax Credit Bonds (TCBs)
Issuer and Investor agree on terms and interest rate established between the buyer and issuer of bonds not the Secretary of Treasury as with other TCBs
Traded on Broker-Dealer taxable desks with Municipal Principal oversight
Federal Exemption Treats BABs as Tax-Exempt for State Law Purposes
Unless Extended, BABs must be Issued before
Disclaimer: Information above is not intended as legal advice and is not an exhaustive discussion
11/10/2018
Confidential & Proprietary

3. Confidential & Proprietary
Overview
As long as the marginal tax rate that clears the municipal market is lower than the credit rate on BABs, then issuers will likely choose BABs over traditional tax-exempt bonds.
BABs reduce interest costs on municipal borrowings with more benefit proportionally to State & local governments with strong credit ratings as opposed to those governments with serious financial conditions.
Interest on BABs is taxable to the bondholder but tax credits are provided in lieu of tax-exemption.
Direct Pay BABs - Issuer of the bonds receives a tax credit equal to 35% of the interest paid to bondholders; or
Tax Credit BABs - Bondholders receive a non-refundable federal income tax credit of 35% of the interest paid by the issuer
11/10/2018
Confidential & Proprietary

4. Confidential & Proprietary
BAB Rules
Can be used for any purpose for which tax-exempt bonds could be issued (water & sewer, schools, roads)
Subject to rules applicable to tax-exempt bonds
Subject to Section 148 (arbitrage rules)
Subject to 10% private use test
May NOT be private activity bonds
Refunding and working capital dictate type of BAB
100% of available project proceeds requirement
Failure to satisfy these requirements may result in loss of tax credit
Note: Further guidance forthcoming from Treasury
11/10/2018
Confidential & Proprietary

5. III. Investor Requirements
In working with issuers and after speaking with broker dealers and
investors:
Tax credit will not be payable until 8038-G is filed
IRS will likely require certification of 100% expenditures within the 36 month period
Tracking of expenditures and retention of records supports expenditures of available proceeds or risk loss of tax credit
Compliance with arbitrage rules and private use monitoring requirements
Electronic payment processing NOT likely
DAC has revised our tax-exempt DDAA to account for BAB requirements
11/10/2018
Confidential & Proprietary