Agenda - 08-04-1993 - VII-B - Laserfiche WebLink

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Use of a "63-20" Corporation Financing What is a "63-20" Corporation. The "63-20" designation derives from an Internal Revenue Service Ruling carrying that numerical designation, further amplified in Rev. Proc. 82-26. In essence, a corporation such as the Triangle Youth Hockey Association ("TYHA") is permitted to issue tax-exempt obligations directly as corporate debt if certain conditions set forth by the Internal Revenue Service are met. The more critical of the requirements are as follows: - Orange County must approve TYHA and the financing, which would be accomplished here through a resolution of the County Board of Commissioners. - Orange County must have the right at any time to obtain unencumbered fee title and exclusive possession of the property financed by defeasing the tax-exempt obligations. - Orange County must have the option to purchase the property for the amount of the outstanding indebtedness plus accrued interest (a par redemption) if TYHA were to default on the obligations. - Orange County must agree to accept title to the facility financed with the proceeds of the tax-exempt obligations when the tax-exempt obligations are discharged. Orange County would eventually be able to reconvey, but it must wait at least 90 days and there can be no pre-discharge agreement to reconvey. How Would the Financing Proceed. TYHA and the Municipal Financial Group (Placement Agent) would develop the necessary documentation with the amount of input the County desired. A trust indenture with a North Carolina financial institution, as trustee, would govern the provisions for the issuance of bonds by TYHA. TYHA would negotiate a contract with the County outlining the extent and limitation of the County's contribution to the project. The contract would be assigned to the trustee under the trust indenture. The County could exercise the degree of control of the project and its operation that it desired to through this contract. The placement agent would be responsible for placing the bonds issued by TYHA to "sophisticated investors" in denominations of at least $100,000. The bonds would not be rated. If there were a default on the TYHA bonds, the bonds would not become the responsibility of the County.