ATLANTA -- Georgia Gov. Zell Miller on Wednesday introduced the state's first-ever industrial development bond pool, bringing to fruition a three-year effort by the state housing authority to provide such a program.
In a keynote speech delivered in Augusta at the annual Governor's Conference on Economic Development, Miller said the Georgia Housing and Finance Authority will manage his "Bonds for Industry" initiative, which will provide funding for loan packages to businesses.
"This is Georgia's very first effort at composite bond issues for industrial purposes," the governor said Wednesday evening. "Basically, we are trying to combine a number of industrial development projects into one larger bond issue."
Miller said that each project funded by the program must be backed, first, by a standby letter of credit from a local bank. A second layer of enhancement, a master letter of credit to be provided by Wachovia Bank of Georgia, will cover all loans funded by a given bond issue.
"Pooling projects into one bond issue will hold down the cost of making the loans, and the use of tax-exempt bonds will provide an interest rate substantially below prime," the governor said.
Miller said that loans under the program may be as small as $500,000 or as large as $10 million. "But we expect that the real impact will be on small and medium-sized companies who need affordable loans in the lower end of this range," he said.
"If we work together, Bonds for Industry can successfully leverage public and private resources to help our small and mid-sized companies with affordable financing to upgrade and modernize their operations and remain competitive," Miller said.
Charles Schroder, the authority's director of economic development, said the program is a product of more than three years of planning and is similar to the approach taken by the California Statewide Community Development Authority.
As with the California program, IDBs sold through the Bonds for Industry initiative will not carry any guarantee from the state, Schroder said.
In 1992, he said, the state legislature authorized Georgia's housing authority to sell up to $140 million of industrial development bonds. But working out the details of the program has taken longer than anticipated, he said.
The toughest hurdle was bringing on board a suitable master letter-of-credit provider, Schroder said. He noted that the Georgia Finance and Investment Commission requires that state bonds carry at least a AA rating. Wachovia Bank is currently rated AA-plus by Standard & Poor's Corp.
Schroder also said it has taken time to put together a financing team "that will provide the expertise and the fees needed to make this work."
Stephens Inc., which is headquartered in LIttle Rock, has been named to underwrite bond issues under the program, with Wachovia Bank serving as remarketing agent. Troutman, Sanders, Lockerman & Ashmore has been named bond counsel, and Smith, Gambrell & Russell bank counsel. NationsBank Trust will serve as the trustee.
The authority may hire a credit manager to help coordinate the program, Schroder said, but he does not foresee any staffing needs beyond that.
He said the authority hopes to sell its first composite IDB issue, which will be at least $5 million, before the end of 1994. In general, he said, the pools would be sold as variable-rate instruments, with final maturity dates matching the useful life of the projects financed.
At today's interest rates, Schroder said, the variable rate initially available to most borrowers under the program would be between 5% and 6%, which compares with the current bank prime rate of 7.25%.
Schroder said he arrived at his estimate by adding the current 3% to 3.5% rate available on tax-exempt variable-rate demand notes, expected rates of between 1% and 1.5% for the local bank letter of credit, 50 basis points for the master letter of credit, and a 40 basis point administrative fee charged by the authority.
"At at least a point below prime, I see borrowers seeking us out, rather than the other way around," he said.
Given the limit of $10 million per company, authority executive director David Pinson said he foresees no problems with the IDB's tax exemption. Under federal tax law, IDBs can be issued as tax-exempt debt as long as each firm does not receive more than $10 million in proceeds within a year. Pinson said each loan that is part of a composite issue would have its own indenture but be marketed under a master financing plan covering a number of loans.
"The idea is to have common documents that spread out the cost of issuance among a number of loans," Pinson said.
Pinson said the authority has also been assured that it will receive a sufficient private-activity bond allocation to pursue the program. The state's 1994 cap is $345.9 million.
Participating borrowers could opt for taxable loans and fixed-rate financing if they wish, the housing official said. "We are running the program to serve the borrowers," Schroder said.
Generally, the authority will scrutinize prospective projects on a first-come-first-served basis. But if the bond allocation limit presents a problem, Schroder said, priority will be given to businesses in economically distressed areas.
Schroder acknowledged that establishment of the IDB program represents a scaled-down version of a more ambitious pool financing plan that Gov. Miller had sought for the authority.
In 1992, Miller introduced legislation to permit the authority to set up a bond bank that would purchase debt issued by local governments for capital projects. The legislation passed in the Senate, but fell victim in the House to worries about broadening the authority's powers. The legislation was not resubmitted.
