- About WSHFC
- Bond Financing
- Housing Credit
- Property Managers
Public Bond Sales
Public Sale Bond Financing is typically the most feasible for bond issues in excess of $5 million.
What is a public bond sale?
In a public sale, investment banks purchase tax-exempt bonds from the Commission then market the bonds to retail and institutional investors. This type of financing is often most feasible for borrowings that exceed $5 million. Bonds sold at public sale generally carry lower interest rates than bonds placed privately with a single investor. Publicly sold tax-exempt bonds issued by the Commission must receive at least an “A” rating from a major rating agency such as Moody’s, Standard & Poor’s, or Fitch. Information on smaller bond issues.
Participants in Bond Financing
A team made up of the borrower and its attorney, the Commission and its financial advisor and bond counsel, the lender and its attorney, bond underwriters, and a trustee all work to put together the bond issue.
Washington State Housing Finance Commission Staff: Commission staff coordinate bond financings, provide avenues of information to
the parties, and assist in ensuring that all required tax-exempt
criteria are met and that the interest on bonds will be tax-exempt.
Bond Counsel: Attorneys specializing in tax-exempt bonds ensure that all the required
tax-exempt criteria are met by the nonprofit organization and that funds are
being expended for the tax-exempt purpose.
Borrower’s Counsel: Borrowers do not hire bond counsel; however, they will need an attorney to
review financial and real estate documents and to prepare an opinion regarding
the nonprofit’s eligibility for tax-exempt financing.
Bond Underwriter: Investment banking firms act as bond underwriters who market and sell
Commission-issued bonds. The bond underwriters can help find credit enhancement
and analyze financing options. They will often make presentations to
organizations’ boards and answer questions about bond financing.
List of underwriters approved by the Commission
Credit Enhancement: Credit enhancement guarantees bondholders of timely payments on their bonds.
Bonds are rated based on the strength of the credit enhancement. To ensure low
interest rates and to provide adequate security to bondholders, the Commission
requires that bonds have at least an “A” rating. Forms of credit enhancement
include: letter of credit, corporate guarantee, or bond insurance. Most of the
bonds the Commission issues for nonprofit organizations use a letter of credit
from a commercial bank. List of banks that have worked with the
Commission in the past (PDF)
Lender: The lending institution is either a commercial bank or savings and loan that
originates the mortgage. Often, the lender is the same institution that provides
the credit enhancement on the bond. When this is the case, the lender sets the
underwriting criteria for the loan.
Financial Advisor: The financial advisor has expertise in structuring and developing bond
transactions and in working with nonprofit organizations. The Commission’s
financial advisor ensures that the bond structure is sound and that the
underwriting team prices bonds competitively. The financial advisor may also
assist the borrower in finding and evaluating credit enhancement.
Trustee: The trustee manages the funds that the bond issue creates, including paying the
Rating Agency: The rating agency evaluates security investment and credit risks. They give the bond its rating. Either Moody’s, Standard and Poor’s, or Fitch will rate the bonds. Typically, the Bond Underwriter provides the agency with bond and finance documents as well as credit enhancer information.
Bond Financing Process
Bond financing takes approximately two to four months to complete and includes the following steps:
Pre-Application: The Nonprofit contacts the Commission staff early to explore financing options.
The board of the Nonprofit passes a resolution approving tax-exempt financing of
the project and a reimbursement resolution.
Selection of Underwriter and Credit Enhancement:
The Nonprofit researches various credit enhancement options and chooses an
underwriter. The Nonprofit works with the underwriter to select and receive a
commitment from a credit enhancer.
Occasionally, this step occurs after the nonprofit has
applied to the Commission. List of underwriters approved by
the Commission (PDF)
Application and Due Diligence: The Nonprofit completes and submits a Washington State Housing Finance
Commission Nonprofit Facilities Financing Application. After the Commission staff
review the application, the Nonprofit submits follow-up documentation regarding
their 501(c)(3) status to bond counsel. Early in the project timeline, the
Nonprofit also applies for all zoning and environmental approvals, required
permits, and certificates of need, if applicable. Permits must be secured in
time for closing on the bonds.
Scoping Meeting: The first meeting that the Commission requires is the scoping meeting, which is
when all of the involved parties come together to meet to describe the
transaction. The purpose of this meeting is to: Identify and address any issues
that could affect the issuance of the bonds; outline and agree on the structure
of the transaction; identify each party’s responsibilities; and develop a
timeline for closing the transaction. The scoping meeting is generally
scheduled by the Bond Underwriter. Before or at the scoping meeting, the
Nonprofit must submit a deposit of 0.5% of the total bond amount to cover
initial costs and document preparation. This deposit is returned to the borrower
less expenses incurred if the project fails to close. Parties that generally
should attend the scoping meeting include the Nonprofit Borrower and its
designated board representative(s), counsel, and financial advisor (if
necessary); Lender and its attorney; Bond Underwriter and its attorney;
Commission Staff, bond counsel to the Commission, financial advisor to the
Commission (if needed) and a trustee.
The Public Hearing: A public hearing, required by the Federal tax code, is held for each project
prior to financing. The Commission considers public opinion in approving
projects for bond financing. (Issues unrelated to the financing, such as the
environmental impact of the project, are not considered by the Commission. The
applicable land-use jurisdiction hears these issues.) The public hearing notice
identifies a project's potential owner, its location, the type of project
proposed, the amount of requested financing, and the population the project will
serve. The public hearing notice is published in the local paper and is also
forwarded to the executive of the local jurisdiction in which the project is
located (such as the mayor, county executive, or city manager). At the hearing,
the borrower makes a brief project presentation to the Commissioners and
should be prepared to answer questions. The lender may attend the public hearing
to speak in support of the project and answer questions, but is not required.
The Commission sends a summary of the public hearing to the Governor for review.
The Governor must approve the issuance of bonds. See Commission staff for
more information about the hearing.
Document Preparation and Review: After the scoping meeting, Bond Counsel, the credit enhancer’s attorney and the
Underwriter’s attorney draft documents and distribute them via email to all
parties. The documents are generally commented upon via email, but two or more
conference calls are scheduled during this phase to discuss the status of the
financing approvals, any pending issues, any major changes to the documents, and
any roadblocks to closing. The Underwriter schedules these calls. The
Underwriter also sends copies of documents to a rating agency for a rating.
The Finance Resolution: The Commissioners make the final approval of the project for bond financing at
one of their regularly scheduled monthly meetings. Generally, neither the
borrower nor the lender needs to be present for this meeting.
Pre-Closing and Closing: At pre-closing, documents are signed; therefore, all document signers must be present. Authorization for signers needs to be completed before closing. The closing takes place at the offices of the Commission’s bond counsel. All fees related to the issuance of the bonds and the Commission pre-paid annual fees are due at closing. Generally, the pre-closing and closing are scheduled with a day or two in-between. Funds are distributed, and documents are recorded on the day of closing.
The application fee is used to cover the costs of processing the application. The application is not a commitment by either the nonprofit organization or the Commission to proceed with financing. If a project site changes, a new application and fee must be submitted. The application fee ranges from $400 to $5,000 depending on the size of the bond issue.
Before the Commission can proceed with drafting the bond documents, a good faith deposit of 0.5% of the proposed bond issue is due. The deposit is due at the scoping meeting, which takes place after the credit enhancer makes a firm commitment. If the issue is not completed, the deposit will be returned less the costs incurred in developing the transaction.
Bond Issuance Fee
The initial Commission Issuance fee is 25 basis points or 0.25% of the total bond issue. Other bond-related issuance costs include bond counsel, financial advisor, trustee fees and the cost of publishing the public hearing notice. Commission staff will outline these costs for you upon request. The costs of issuance will vary depending on the type and structure of the bond. Up to 2% of the bond proceeds may be used to pay for these costs.
Annual Commission Fee
The annual Commission fee has been temporarily waived from 25 to 10 basis points (0.10%) of the outstanding bond amount as of July 1 of each year, paid in semi-annual installments.
Please feel free to contact our staff. We prefer to start working with nonprofits during the preliminary capital campaign planning stage. Many decisions made early on will affect your financing flexibility. We are here to help you through the bond financing process. The process outlined above may sound difficult, but we make it easy. If you are a nonprofit who needs to borrow funds for your capital project, you deserve a lower interest rate. By helping you save money on your debt service, you can put those valuable dollars toward serving the mission of your organization.