Board Policy - Section Number: 03.02.06.01

General Statement

In order to ensure that the conduit financing process for all Hillsborough County Industrial Development Authority (the "IDA") issued bonds, notes and similar debt obligations (collectively "Bonds") and all bonds, notes and similar debt obligations to be issued by other governmental entities for which the Board of County Commissioners of Hillsborough County, Florida (the "BOCC") is requested to provide approval primarily for purposes of Section 147(f) of the Internal Revenue Code of 1986, as amended ("TEFRA Requests") reflect current organizational and marketplace business practices, staff from the Economic Development Department, Management and Budget Department, and the County Attorney’s Office, together with the IDA’s general counsel, the County/IDA Financial Advisor (the "Financial Advisor") and the County/IDA Bond Counsel ("Bond Counsel"), have undertaken a collaborative, comprehensive review of existing conduit financing policies, and have prepared these Revised Conduit Financing Application Review Objectives, Policies, Process and Procedures (the "County Conduit Financing Review Procedures") which are adopted by the BOCC and shall supersede all existing BOCC conduit financing policies.

The Guidelines for Conduit Revenue Bonds and TEFRA Requests adopted by the IDA (the "IDA Guidelines") are supplemental to these County Conduit Financing Review Procedures and incorporate these County Conduit Financing Review Procedures by reference. The IDA will revise the IDA Guidelines whenever necessary to ensure consistency with these County Conduit Financing Review Procedures. These County Conduit Financing Review Procedures as well as the IDA Guidelines shall be reviewed as frequently as necessary to reflect changes in federal tax laws and state statutes, as well as general business practices.

Review Process

The IDA has historically issued its Bonds under Chapter 159, Florida Statutes and it is expected that the IDA will continue to do so. Section 159.29, Florida Statutes specifically addresses "criteria and requirements" for the issuance of Bonds under Chapter 159, Part II, Florida Statutes and the BOCC finds this instructive. The general purpose of a review of applications for Bonds and TEFRA Requests (collectively, "Applications") is to provide a recommendation to the BOCC based on a determination of the following factors: creditworthiness of applicants and financial soundness of the Bonds; legal sufficiency; no legal or financial recourse to the County, unless otherwise provided for by agreement with the County; economic benefits to the community; and any impacts or relationships to County departments and operations.

These County Conduit Financing Review Procedures, including the review process attached hereto as Appendix "A" and incorporated herein by reference, have been developed to carry out the purpose, objectives and policies pertinent to Applications. These County Conduit Financing Review Procedures provide a mechanism for review of Applications and supporting documents by appropriate County staff, Bond Counsel and the Financial Advisor, and submittal of a staff report to the BOCC to assist in its decision-making process.

Review Procedures

These County Conduit Financing Review Procedures shall be implemented for all Applications.

Policy Guidelines

The following policy guidelines will be used to aid in the evaluation of the financial aspects of Applications:

• (a) subject to the section below regarding "Unrated and Non-Investment Grade Bonds", transactions must have an investment grade rating from one of the nationally recognized credit rating agencies (e.g. Moody’s Investors Service, Standard & Poor’s Global Ratings, Fitch Ratings and Kroll Bond Rating Agency);
• (b) irrevocable direct-pay letters of credit or bond insurance may be used as credit enhancement;
• (c) if the debt obligation is issued/documented in a form other than as a direct placement to a commercial bank (to be held for its own investment) or other institutional investor, an independent trustee must be appointed. Such institution may be either a bank or trust company possessing the requisite trust powers, may not be a receivership with the FDIC or appear on the Failed Bank list maintained by the FDIC (available at www.fdic.gov), may be located within or outside of the State of Florida, and must have a minimum unimpaired capital and surplus of at least $50 million;
• (d) reputable, nationally recognized, bond counsel must be retained by the applicant;
• (e) the primary financing instrument must provide for the assignment of the potential proceeds of any third party to the holder;
• (f) the viability of the business must be demonstrated using the following metrics:
• (i) profitability in three of the applicant’s last five (5) fiscal years and demonstrating a positive trend for the future;
• (ii) unqualified audit opinions for the five (5) most recent fiscal years issued by a reputable firm of independent certified public accountants;
• (iii) no prior defaults on contracts or borrowings; and
• (iv) an absence of litigation that could reasonably be judged to impair the applicant’s payment of its bond obligations or the viability of the business operation(s) which will be funded with proceeds from the conduit issue;
• (g) if the applicant is a subsidiary or division of another company, the parent company must fully guarantee the repayment of the conduit debt; and
• (h) at least 10% of the cost of the project being financed with proceeds from the conduit issue should be funded with equity capital of the applicant.

Unrated and Non-Investment Grade Bonds

In the event that the transaction is unrated or not of investment grade, the financing must be structured such that Bonds are contractually required to be sold only to and held only by qualified institutional buyers or accredited investors in the manner specified, as follows:

• (a) Accredited Investors and Qualified Institution Buyers: Minimum denominations of $250,000 with an initial investor letter, but not a traveling investor letter. Notwithstanding the foregoing, if the Bonds require both an initial investor letter and a traveling investor letter, minimum denominations of $100,000 are permissible;
• (b) Accredited Investors (only): Minimum denominations of $250,000 with an initial investor letter, but not a traveling investor letter. Notwithstanding the foregoing, if the Bonds require both an initial investor letter and a traveling investor letter, minimum denominations of $100,000 are permissible;
• (c) Qualified Institutional Buyers (only): Minimum denominations of $100,000 with an initial investor letter, but not a traveling investor letter; and
• (d) Controlled Bonds: In the event that: (i) 100% of the Bonds are sold to qualified institutional buyers and/or accredited investors, and (ii) 100% of such purchasers are represented by a registered bondholder representative ("Controlled Bonds"), while the Bonds are Controlled Bonds, the IDA may, upon the recommendation of the Financial Advisor, authorize the Controlled Bonds to be issued in minimum authorized denominations of $5,000, except that in the event such Controlled Bonds are transferred in such a manner that they would no longer be Controlled Bonds, such Bonds may only be transferred in minimum denominations of $100,000 if transferred to only qualified institutional buyers and $250,000 if transferred to one or more accredited investors. In addition, Controlled Bonds shall require a letter of the bondholder representative at issuance and in the event such Controlled Bonds are transferred in such a manner that they would no longer be Controlled Bonds, a letter from the new bondholder representative or an investor letter from the subsequent purchaser (i.e. a traveling investor letter).

The letters and restrictions described in this section shall be subject to the review and satisfaction of County staff, Bond Counsel and the Financial Advisor.

Application and Bond Issuance Fee Structure

The IDA’s Application fees and financing fees shall be in such amounts as are sufficient to fully reimburse the reasonable costs of: (1) County staff time and expenses, (2) the fees and expenses of the Financial Advisor, (3) the fees and expenses of Bond Counsel, (4) IDA General Counsel fees and expenses, (5) any other fees and expenses incurred by the IDA and the County as a result of an Application and/or Bond issuance, and (6) fees and expenses of all other professional services contracted by the IDA in connection with a financing. The IDA will enter into separate contracts with the Financial Advisor and Bond Counsel for the provision of services, the terms and conditions of which will not conflict in any material respect with the policies, guidelines and procedures described herein.

Allocation of Private Activity Bond Volume Cap

The BOCC, at its discretion, reserves the right to defer or withhold approval of otherwise eligible private activity bond Applications and to award priority to certain Applications. Priority status shall be considered for those Applications representing companies/projects which:

• (a) fall into one of the categories identified as targeted industries by the Florida Department of Economic Opportunity ("State"), or other similar designation by the County’s Economic Development Department, namely: Corporate Headquarters, Financial and Professional Services, Life Sciences and Health Care, Defense and Security, Manufacturing/Distribution/Logistics, and Information Technology;
• (b) demonstrate the greatest level of potential tax generation, value-added job creation, and local economic benefit in comparison with other projects, with no serious negative effects upon the physical environment; and
• (c) comply with the County’s Equal Employment Opportunity/Non-Discrimination requirements and demonstrate acceptable levels of minority and female employment consistent with available labor pools.

Private activity bonds (PABs) are allocated by region on a per capita basis and subject to a volume cap. The available funding must cover PAB needs of the Housing Finance Authority (HFA), IDA, and other entities whose activities are eligible for such financing. Such funding is allocated on a first come, first served basis, which sets up the potential for lower priority companies who apply early to take down the entire allocation, leaving no financing for those companies who may be a higher priority but apply later.

Although Industrial Revenue Bond ("IRB") financing has become less attractive since the 1986 federal tax law changes, it still represents a viable financing alternative which must be properly managed to yield the greatest economic benefits. Start-up ventures, real estate speculators and companies which do not have a minimum five-year operating history should be discouraged as applicants for IRB financing, unless: (i) in the judgment of the County, the applicant is adequately capitalized, with a minimum of 75% of its capitalization in the form of equity; and (ii) a technical and financial feasibility study indicates that the business/project to be financed is feasible. In the case of IRBs being issued for private sector companies, at least ten percent (10%) of the cost of the project financed with the IRBs should be funded with equity capital of the applicant.

Equal Employment Opportunity; Non-Discrimination

Each person or entity submitting an Application shall comply with: Hillsborough County, Florida – Code of Ordinances and Laws, Part A, Chapter 30, Article II (Hillsborough County Human Rights Ordinance) as amended, which prohibits illegal discrimination on the basis of actual or perceived race, color, sex, age, religion, national origin, disability, marital status, sexual orientation, or gender identity or expression, in employment, public accommodations, real estate transactions and practices, County contracting and procurement activities, and credit extension practices; and the requirements of all applicable federal, state and local laws, rules, regulations, ordinances and executive orders prohibiting and/or relating to discrimination, as amended and supplemented. Moreover, each Application shall contain an assurance of compliance with the foregoing requirements.

Departmental Review Objectives

The general purpose of a review of Applications is to provide a recommendation to the BOCC based on a determination of the following factors: creditworthiness of applicants and financial soundness of the Bond issue; legal sufficiency; no legal or financial recourse to the County; economic benefits to the community; indemnification of the County, and any impacts or relationships to County departments and operations. The Application review process and procedures are provided in Appendix "A."

County Attorney/County Bond Counsel

As directed by the County Attorney’s Office, Bond Counsel will review Applications in order to verify that: (i) there is nothing in the documents that can be construed to conflict with the provisions of applicable law, including, but not limited to Chapter 159, Florida Statutes, which provides that the Bonds do not represent, directly or indirectly, a pledge of the County’s credit, and (ii) that the project contemplated for financing meets the criteria contained in applicable law, including, but not limited to Chapter 159, Florida Statutes, for financing; and to assist, as requested, in negotiating terms of the financing structure.

Economic Development Department

The Economic Development Department will assess the potential economic impact of the project upon the community, including the impact on the local labor market (temporary as well as permanent workers) and housing market, the impact on tax revenues (sales tax, utility taxes, franchise taxes, etc.), the impact on the local real property tax base, and the potential for the project to enhance the community and provide economic growth. Consideration will also be given to the project’s consistency and compatibility with targeted industry clusters, as defined by the State of Florida, and its consistency with the County’s Comprehensive Plan and other policies established by the BOCC, as applicable.

Management and Budget Department/IDA Financial Advisor

A transaction summary report prepared by the Financial Advisor is required for all Applications. Applications fall into the three general categories in terms of the level of review required relative to creditworthiness and municipal finance:

• (a) Category A: The proposed transaction has been evaluated by one of the major credit rating agencies (as defined previously in the “Policy Guidelines” section of these County Conduit Financing Review Procedures) and deemed to be a low credit risk, as evidenced by an investment grade credit rating. If the reviewer concurs with the substance and conclusion of the rating agency’s analysis, the report may be reasonably relied upon and a supplemental review by the Financial Advisor is not required. However, if the published analysis is regarded to be inadequate or insufficient, the County reserves its right to request that the Financial Advisor perform a supplemental review;
• (b) Category B: The proposed transaction does not have an investment grade credit rating from any of the major credit rating agencies. The objective is to reasonably determine that the project is creditworthy and that adequate cash flow will be generated to repay the Bonds; and in addition, that the project financed is neither speculative nor of an unproven nature such that the likelihood of a default on the Bonds is more than remote. Applicants must comply with the requirements for Category A Applicants, and also must provide the corporate ownership/legal structure for itself, its parent, and any relevant related entities; audited financial statements (with opinion letters and footnotes) for the five (5) most recently ended fiscal years; cash flows for the five (5) most recently ended fiscal years, as well as cash flow projections for the next five (5) fiscal years (including assumptions); and a feasibility study demonstrating the viability of the proposed venture;
• (c) Category C: The proposed financing transaction requires the County to enter into an agreement with the applicant. The objective is to reasonably determine that, regardless of whether the venture qualifies as Category A or B, the financing structure is not economically detrimental to the County’s interests, and that the Bond financing and associated agreements between the County and applicant company are structured so as to achieve the desired economic impact for the benefit of the County. Applicants must comply with requirements for Category A and B Applicants, and also must provide copies of all agreements related to the issuance of the Bonds by the IDA and the project which is to be financed or refinanced. The agreements must include the rights and obligations of the County relative to economic return on investment, and the financial impact of the transaction on County debt and/or credit; and
• (d) Category D: Notwithstanding the fact that neither the IDA nor the County will be issuing the Bonds, TEFRA Requests shall nevertheless be characterized in either Category A, B or C of this section.

Other County Departments

IRB Applications which have a particular relationship to or impact upon County operations will be forwarded to the appropriate County department for review and inclusion of comments in the staff report.

TEFRA Requests

All TEFRA Requests shall be submitted through the IDA by submitting an Application. The IDA shall consider all TEFRA Requests on behalf of the BOCC and upon its satisfaction with the Application and compliance with these County Conduit Financing Review Procedures, shall conduct a TEFRA Hearing with respect to the Bonds on behalf of the BOCC. After the TEFRA Hearing is conducted, the IDA's general counsel shall present the item to the BOCC for TEFRA approval in the same manner in which Bonds to be issued by the IDA are submitted for approval.

Appendix "A"

Conduit Bond Financing Application Review Process And Procedures

1. Business submits application to the Industrial Development Authority ("IDA"), along with the established IDA application fee.
2. IDA General Counsel screens application for eligibility and completeness. Upon determining the application is complete and the applicant is eligible, the IDA General Counsel transmits electronic copies of the application and available supporting documentation to the County/IDA Financial Advisor (the "Financial Advisor"), and to the Hillsborough County Economic Development Department, together with any portion of the application fee due to the Board of County Commissioners ("BOCC"). Applications shall be forwarded to the Economic Development Department for County review at least 45 days prior to the BOCC meeting at which the application is to be presented.
3. Upon receipt from IDA General Counsel, the Economic Development Department transmits a copy of the application package and any other pertinent supporting review information to the County Attorney’s Office, which will request review by County/IDA Bond Counsel ("Bond Counsel"), and to the Management and Budget Department, which will request review by the Financial Advisor. Economic Development shall also transmit an application copy to any other County departments which may need to review applications as appropriate for specific projects. Information concerning the IDA’s financial analysis of the application, any requirements imposed for credit enhancement, and equity contribution requirements shall also be transmitted to the reviewing agencies.
4. Participating County departments/parties review the application simultaneously. (See "Departmental Review Objectives" in the County Conduit Financing Review Procedures).
5. County comments are shared with the IDA for consideration in final approval or rejection of the application. The IDA will take into account the recommendations of the Financial Advisor in imposing requirements and conditions in connection with the proposed issuance. In the event the IDA does not accept one or more of the Financial Advisor’s recommendations, the IDA will provide the County with a detailed written explanation of its reasons. If major problems are identified as a result of the County’s review, or additional information is needed, the application is returned to the IDA for action and resubmittal.
6. If the IDA approves the application, it is then presented to the BOCC as an agenda item for its consideration/approval; a County staff report and the Financial Advisor’s recommendations are included as part of the agenda package. If the IDA rejects the application, no further action is taken and the applicant is notified. The IDA will take into account the recommendations of the Financial Advisor in imposing requirements and conditions in connection with the financing and in making its recommendations to the BOCC regarding elected official approval. The IDA shall forward the Financial Advisor’s recommendations together with the IDA’s request to place the financing on the BOCC agenda for elected official approval.
7. The application with accompanying County staff report is presented to the BOCC for approval. If approved, the bond issuance proceeds; if rejected, no further action is required and the applicant is notified by the IDA.