Industrial Development Bonds

Government agencies issue bonds to finance a variety of economic or public development projects for private and public entities. When investors purchase bonds, they essentially lend money to the borrower through the issuer. In return for the bond proceeds, the borrower promises to pay the investors/bondholders the principal amount plus a specified rate of interest over the life of the bonds based on the bonds debt service payment schedule. In this way, a bond is similar to a complex loan.

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$3.4 billion

Total green and social bonds issued by IBank

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59,327

Jobs that have been created through bond-financed projects in California

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$52.5 billion

Total bond activity

Municipal Bonds

Bonds issued by government agencies are called municipal bonds. The proceeds of the bonds are used to finance projects that benefit the community such as roads, schools, bridges, sewers, parks or water treatment. Most bonds issued by government agencies are tax-exempt. This means interest on these bonds are excluded from gross income for federal tax purposes. In addition, interest on the bonds is exempt from State of California personal income taxes.

Who is a conduit bond issuer?

As a conduit issuer, IBank does not underwrite the bonds in house. IBank issues bonds on behalf of a borrower and then lends those proceeds to that borrower. The bonds are special, limited obligations payable solely by the borrower’s payments. The borrower provides security to the bondholder and agrees to repay the bonds.

Industrial Development Bonds (IDBs)

Tax-exempt financing up to $10 million for qualified manufacturing and processing companies for the construction or acquisition of facilities and equipment. IDBs allow private companies to borrow at low interest rates normally reserved for state and local governmental entities.

Eligible IDB Bond Applicants
Industrial Development Bonds (IDB’s) are tax-exempt securities issued up to $10 million by a government agency to provide money for the acquisition, construction, rehabilitation and equipping of manufacturing and processing facilities for private companies.

Projects
The project financed by the bonds must be a facility used for manufacturing, production or processing of tangible or intangible property (including the processing resulting in the change of such property). No more than 25% of the bond proceeds can be applied to ancillary office, warehouse or other space.

Public Benefits
The project financed by the bonds must meet certain public benefit criteria established by the IRS, which include, among other things, the creation or retention of jobs. All IDBs need to submit a separate application to the California Debt Limit Allocation Commission (CDLAC) in order to receive a tax-exempt allocation. Please visit treasurer.ca.gov.

The IDB Process
The IDB financing process can generally be completed within 120-150 days. The IBank staff and financing team, which typically consists of an underwriter, bond counsel and financial advisor, will assist the applicant through each stage of the process.

Stage 1 – Pre-Qualification

Federal Requirements
State Requirements

State 2 – Approvals

Inducement Resolution by Issuer
Application to Issuer for Final Approval
Noticed Public Hearing (“TEFRA”)
Letter of Credit Commitment from Bank
State Tax-Exempt Allocation Approvals

Stage 3 – Bond Issuance

Documentation
Final Resolution of Issuance by Issuer
Bond Sale
Funding

View our most recently issued IBank Bonds

IBank issues bonds for a variety of projects throughout the state including museums, educational facilities and performing arts centers, research institutes, manufacturing facilities and more. Some of the most iconic projects that have been financed with the help of IBank issued bonds include the Bay Area Toll Bridge, the Petersen Automotive Museum, the Academy Museum of Motion Pictures, the J. Paul Getty Museum, the B Street Theatre (Sophia) and more. Check out some of the projects that have used IBank issued bonds.

View our most recent issued IBank Bonds

Frequently Asked Questions and Fact Sheet

IBank Issued Bonds

Q: Is there an aggregate limitation on IDBs?

A: A borrower and certain users may not be the beneficiary of more than $40 million of certain tax-exempt bonds regardless of the location of the projects, during a three year period after the facility being financed is placed in service.

Q: What are considered eligible IDB costs?

A: At least 95% of the bond proceeds must be spent on qualifying costs, generally capital expenditures such as land, building and equipment and other depreciable property (and can also include capitalized interest during construction). Land: No more than 25% of the proceeds can be used to acquire land.

Q: What is the maturity for an IDB?

A: The average maturity of the bonds cannot exceed 120% of the average economic life of the assets financed.

Q: Is there a limit to the amount of capital expenditures that can be spent on an IDB project?

A: Yes, total capital expenditures for the project (the aggregate face amount of the issue plus the aggregate amount of capital expenditures) in the same public jurisdiction where the project is located cannot exceed $20 million during the six-year period beginning three years before the date of the IDB issuance and ending three years thereafter.

Q: What is the credit requirement for IDBs?

A: The borrower needs to secure a letter of credit in the amount of the bonds from a bank with a long-term credit rating of at least “A3” from Moody’s Investors Service, or an “A-” from Standard & Poor or Fitch Ratings, Inc. Bonds can also be sold directly to Qualified Institutional Buyers or Accredited Investors, without a rating, as long as IBank conditions for direct Purchases or private Placements are met. For details, please refer to IBank Policies and Procedures for Conduit Bonds.

Q: Can the acquisition of existing manufacturing facilities be financed with an IDB?

A: The acquisition of existing facility (including manufacturing equipment) can be financed if at least 15% of the portion of the bond amount used to purchase the facility is spent on eligible rehabilitation of expenditures within a two-year period. The machineries purchased with the IDBs proceeds must be brand new.