TAX CREDIT EQUITY SUPPORTED BOND FINANCING AT HELZER COURTS

In order to develop Helzer Courts Apartments, a large, secluded family housing project located on Communications Hill in San Jose, the Housing Authority developed an innovative financing structure which increased net proceeds from a multiyear equity syndication of a bond-financed project by over 15% through integration of equity syndication documents with documents for tax-exempt bonds issued to fund a bridge loan to the sponsor.  These bonds have their payments funded out of a portion of tax credit based equity paid according to a fixed schedule subject to project completion.  The value to the investor in deferring equity payments exceeds the interest costs of the tax-exempt borrowing, a "rate play" which produced the enhanced syndication efficiency.

Over $900,000 in sources of funds to pay for construction period development costs was generated through this structure than otherwise would have been available through a more typical front-loaded equity funding structure.

The issuance of rated tax-exempt bonds without credit enhancement or an issuer guarantee to fund a tax credit equity bridge loan was accomplished for the first time with the Helzer Courts transaction.  New rules governing corporate accounting practices as well as changes to the marketplace from these investments will necessarily limit future applications of this concept.

For more information on this financing program see an article by Matt Steinle, Development Director of the Housing Authority, entitled Borrowing Against Staged Tax Credit Equity Payments in the Capital Markets from the Fall 1999 issue of The Journal of Project Finance.