Midwestern Disaster Area Bonds Still Available
by Dean Spina, Attorney
April 2011 -- Midwestern Disaster Area (“MDA”) Bonds are available through December 31, 2012. At the end of 2010, approximately $2.3 Billion of MDA Bond capacity remained available in Iowa.
MDA Bonds enable a Borrower to borrow at substantially lower rates of interest. The rate is negotiated, but is typically about 70% of the interest rate of conventional financing.
During 2010 banks were allowed to buy MDA Bonds, and Bradley & Riley participated in 21 MDA Bond transactions that closed last year. Those 21 MDA Bond transactions represented more than 70% of all bonds issued in Iowa in 2010, and more than 41% of the dollar volume of all MDA Bonds issued in Iowa last year.
We were involved in MDA Bonds issued for projects in Cedar Rapids (8), Coralville (5), Marion (2), North Liberty (2), Hiawatha (2), Iowa City (1) and Waterloo (1). Those MDA Bond projects ranged in size from $9,375,000 to $368,000, with an average size of $2.4 million. Six different banks purchased MDA Bonds in those transactions.
MDA Bonds may be used for commercial, industrial, warehouse, agricultural or residential rental projects. The Borrower does not need to have suffered a loss as a result of flooding.
Congress has not extended the special tax code provision that allowed Banks to purchase MDA Bonds issued in 2010. However, an effort to extend the ability of Banks to buy MDA Bonds is ongoing. We continue to pursue the legislation needed to again allow banks to advantageously acquire MDA Bonds, and Dean Spina made a trip to Washington DC with the Iowa City Chamber of Commerce for that purpose.
If Banks cannot buy MDA Bonds, the MDA Bonds will be sold through a private placement or through an underwriter. Because of that complexity and the resulting increase in transaction costs, the minimum size for such bonds is probably $4-5 million or more.
Projects that qualify for MDA Bonds should obtain a “Reimbursement Resolution” to enable the project to be funded with MDA Bonds, particularly if Banks can again purchase MDA Bonds. This step is critical and is time sensitive. This step needs to be taken before the purchase of property and/or the start of construction.
The interest savings with MDA Bonds is substantial. Anyone contemplating a construction project or acquiring and substantially rehabilitating an existing building should investigate MDA Bonds. Please contact Dean Spina for more information.