On April 2012, the Internal Revenue Service (The IRS ) Distributed an Online Questionnaire

Public Finance
Client Alert

February 4, 2013

CDFI Bond Guarantee Program

Interim Rule Released

On January31, 2013, the U.S. Department of the Treasury’s Community Development Financial Institutions Fund (CDFI Fund) released the interim rule for the CDFI Bond Guarantee Program. Under this new program, eligible Community Development Financial Institutions (CDFIs) or their designees will issue bonds that are guaranteed by the Federal government and use the bond proceeds to extend credit to the broader CDFI industry for community development purposes and for longterm community investments.

Program Summary

Deal Sizes: Treasury may guarantee up to 10 bonds per year, each at a minimum of $100 million, with a total of up to $1 billion in bonds guaranteed per year.

Scope: Bonds (including principal, interest, and call premiums) will be 100% guaranteed by the U.S. government. The Federal Financing Bank will be the sole purchaser of bonds issued under the CDFI Bond Guarantee Program.

Eligible Uses: Bond proceeds may be used to provide financing in lowincome (not more than 80% of area median family income) or underserved rural areas for any of the following types of eligible projects:

· Commercial facilities that promote revitalization, community stability, or job creation or retention;

· Businesses that provide jobs for lowincome people or are owned by lowincome people; or enhance the availability of products and services to lowincome people;

· Community facilities;

· Providing basic financial services; and

· Housing that is principally affordable to lowincome people.

Specific examples of the types of eligible projects provided by the CDFI Fund include small businesses, commercial real estate, housing units, shelters, charter schools, and daycare or healthcare centers.

Structure: CDFIs may apply to become “Qualified Issuers.” A Qualified Issuer will be authorized to issue the bonds and use the bond proceeds to make Bond loans to other CDFIs. The Qualified Issuer may not use the Bond proceeds to make loans to themselves. The recipients of the Bond loans are called “Eligible Borrowers” and they can use the Bond loan proceeds to make investments in eligible projects or to make secondary loans to “Secondary Borrowers.” Secondary Borrowers do not have to be CDFIs. Other key features of the structure include:

· Repayment of the Bonds are nonrecourse to the Qualified Issuers (but the Bond loans are recourse to the Eligible Borrowers);

· Qualified Issuers must loan 100% of the Bond proceeds on the closing date; and

· Eligible Borrowers must reloan or use 50% of the Bond loan proceeds within 12 months and 100% within 24 months.

Loan Loss/

Risk Share Pool: Qualified Issuers may fund a loan loss reserve of 5% of the Bond issuance and Bond proceeds may be used to fund this reserve. Eligible Borrowers must fund a riskshare pool of at least 3% of the Bond loan amount from sources other than Bond proceeds.

Timeline: The CDFI Fund has not yet announced dates for the applications for this new program but we are keeping a close watch on all announcements and will be attending the upcoming CDFI Fund training sessions. The interim rules are effective 60 days after the upcoming publication in the Federal Register and the CDFI Fund will be receiving comments on the interim rules during this 60-day period.

Kutak RockLLP has assembled a team of attorneys focusing on this new Program to leverage our national footprint and expertise in public finance to assist our clients in developing strategies to access these funds. Please contact us to learn more about the CDFI Fund Bond Guarantee Program.

Drew Marlar, Esq.
Atlanta
(404) 2224662
/ Leslie Powell, Esq.
Atlanta
(404) 2224639
/ Chuck Shimer, Esq.
Richmond
(804) 343-5221

This Client Alert is a publication of Kutak Rock LLP. This publication is intended to notify our clients and friends of current events and provide general information about public finance issues. This Client Alert is not intended, nor should it be used, as legal advice, and it does not create an attorney-client relationship.

To ensure compliance with requirements imposed by the IRS, we inform you that any federal tax advice contained in this communication should not be used or referred to in the promoting, marketing or recommending of any entity, investment plan or arrangement, and such advice is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties under the Internal Revenue Code.