PAB: Private Activity Bonds...

A PAB is a private activity bond.  In today's capital markets, PABs offer developers with the opportunity (in some cases) to obtain low-interest rate tax-exempt financing for the development, construction and/or permanent financing requirements of a for-profit business that meets certain threshold criteria the state may have.  In disaster areas, private activity bonds are a blessing designed to jump-start new business development and create jobs.  Most states have requirements for private activity bond financing that include:

	Job creation goals.  The more jobs, the more likely your inducement resolution will garner the preliminary approval from the state bond commission.  Job creation is the engine that drives the monster even though developers and consultants frequently stretch the jobs creation numbers.  Rainmaker Marketing Corporation can help; we prepare economic impact studies that define the jobs creation aspects of the proposal.
	Feasibility due diligence.  You need to provide solid due diligence documentation - market feasibility and financial feasibility.  We hope you will turn to Rainmaker Marketing Corporation for these needs, but "the need" must be fulfilled with an arm's-length approach in most cases.  The project must demonstrate sufficient market and financial capacity to retire the bonds and provide an additional level of profitability (the debt service coverage ratio) necessary to give the investment bankers relief from heartburn.  The project must also provide complete due diligence disclosures regarding: Civil engineering matters.  The investment or mortgage bankers are going to require there to be an approved site plan, grading plan, topographical surveys, metes & bounds surveys and development plat. Mechanical, electrical and plumbing design matters.  The MEP package must be of sufficient detail so as to allow the MEP sub-contract to provide a fixed-price construction contract. Structural engineering matters.  The structural engineer must provide a review letter providing an opinion on the construction systems. Construction pricing and value engineering matters.  The contractor's pricing and the independent value review consultant's opinion report must be provided. Contractor and construction matters.  The complete contractor disclosure including bonding letter, financials and contracts must be provided. Property manager and management related matters.  The property manager's contract and business plan proposals must be provided. Site disclosures including environmental analysis, the soils testing report, specimen form of title and title insurance, utility access, permitting and licensing matters must be fully disclosed.
	Size of issue.  Overly large and overly small projects are not going to typically be approved.  On the one hand the concern is lending risk concentration while on the other hand the concern is whether or not the financing represents a cost-effective solution.  This makes private activity bonds more problematic and expensive in terms of issuance costs.  There are a host of issues here that require careful consideration and comparison before a commitment is made to the PAB application process.

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