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TAXABLE BOND FINANCING By:
Thomas P. Martin
The variable rate taxable bond is becoming a popular financing
method for capital projects, debt refinancing and acquisition financing.
Variable rate taxable bonds are available for non-manufacturing
as well as manufacturing clients.
The interest rates on variable rate taxable bonds are generally
1 to 2½ points less than conventional interest rates.
The bonds bear a floating rate of interest that resets every
seven days. The weekly
rate is based upon a spread over 30-day high-grade commercial paper.
Bonds may be prepaid in full or in part without penalty and the
variable rate bond can be converted to fixed rate bonds.
A standard feature of the variable rate taxable bond transaction
is an irrevocable Letter of Credit from a lender providing both credit
and liquidity support for the bonds.
The bonds are distributed through an underwritten public sale.
The placement agent underwrites and sells the bonds through its
network of retail and institutional sales representatives.
Most major banks now have this underwriting/remarketing capability. The variable rate taxable bond transaction can usually be structured, documented, marketed and closed within 60 days of the date that the bank issues a commitment letter for its Letter of Credit and the placement agent has been identified. |
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