TAX-EXEMPT FINANCING
For certain projects that qualify, Ziegler can underwrite tax-exempt bonds that bear interest rates that can range from 20-40% lower than taxable bonds. Typically, this type of structure is limited to construction or refinancing of capital used for constructing school or educational facilities. There are a number of different structures available.
LONG-TERM FIXED RATE TAX-EXEMPT BONDS.
Ziegler is an expert in underwriting long-term fixed rate tax-exempt bonds. Fixed rate bonds can provide some significant advantages over letter of credit bonds or conventional bank financing.
Long-term SecurityYour institution never has to worry about refinancing a short-term bank note or rising interest rates. The interest rate you've obtained through the bond issue is fixed for the entire 20 to 30-year term of the loan.
For example, refinancing a short-term bank loan during a time of rising or high interest rates can mean higher mortgage payments. Since most non-profit institutions spend all of the money they receive, the additional costs could mean cutbacks on needed programs and services.
Reduce Your Risk
Because of the fixed rates provided with a long-term bond issue, you eliminate a substantial portion of the risk associated with borrowing on a multi-million dollar project. For instance, if enrollment and growth projections are not met, a bank may not be willing to refinance a short-term loan or renew a letter of credit or bank qualified bonds. Additionally, if interest rates have risen, your institution is faced with an increased new mortgage payment that it can't afford. With a fixed rate bond issue, your institution is not exposed to these risks and you know your total cost for financing. You have a fixed-rate, full-term loan, with no balloons.
Open-ended Mortgage
Is it possible that your institution will need to borrow additional funds for future phases of construction or additional projects? With traditional bank financing you would most likely have to refinance the original loan at the time of the second loan. This may involve additional fees, increased interest rates or prepayment penalties. Subject to certain conditions and credit qualification, fixed-rate bond issues underwritten by Ziegler typically allow additional financing to be added on to the existing loan balance, without changing any of the terms of the original bond issue. Interest rates on the new money would reflect current market rates however.
What about fees for a fixed-rate bond issue?
Bond financing does require your institution to pay underwriting fees, which are used to compensate the brokers who sell the bonds and the underwriter for the risk involved in purchasing the entire issue before bonds are sold. Fixed rate bonds do have underwriting fees that are slightly higher than bank loans or letter of credit backed bonds. However, the fees for a bond issue do not have to be paid with cash at closing, and can be financed over the life of the loan. By paying a little more in the way of up-front costs, your institution "purchases" more attractive loan terms described above. The fees paid on a one-time basis for a bond issue can be a bargain if you add-up the potential future unknown and undisclosed costs on traditional or variable rate financing.
For more information about Ziegler’s educational financing, please contact one of our experienced team members.