Replies to post #580 on Geobio Energy (fka GBOE)

[RagingStocks]

I don't understand this: "The Fond du Lac City Council approved the bonds at its meeting Wednesday night." LOL




Firms planning to utilize industrial revenue bonds

By The Reporter Staff

Two firms planning to build in Fond du Lac's Southwest Industrial Park intend to utilize industrial revenue bonds to help finance the projects.

The Fond du Lac City Council approved the bonds at its meeting Wednesday night.


EnviroPlastics Corp., a Nevada corporation, requests the approval of an initial industrial revenue bond resolution in the amount of $20 million.

The corporation plans to construct and equip an 80,000-square-foot industrial building, employing 77 people. The City Council, in November, authorized a land sale in the industrial park to the company.


McNeilus Steel of Dodge Center, Minn., is asking Council to approve the issuance of $7 million in industrial revenue bonds to help build a new plant in Fond du Lac.

The company intends to construct an 84,000-square-foot structure that would initially employ 25 people. Another 25 people are expected to be employed within three years, according to the company's plans. Council approved the land sale to the company in August 2008.

Community Development Director Wayne Rollin said industrial revenue bonds are authorized by federal law and are a way for communities to help fund projects.

"The bonds that they sell …will be federally tax free," Rollin said. "This makes the bonds more attractive to investors. They are able to buy them at a lower interest rate because they don't pay federal tax on the interest earned in this investment."

Rollin said municipalities are required to approve the sale of the bonds because they are done in the name of the municipality where the projects are located. He added that the bonds would not represent a liability to the city and would not count against the city's debt. The city would not be responsible for the bonds and would not be required to pay them back.

"These are both good-news projects," Rollin said of the business developments.


http://www.fdlreporter.com/apps/pbcs.dll/article?AID=/20090115/FON0101/901150347&template=printart

[Chance To See]

Thanks, theindustriesdriver.

I thought I understood based on stervc’s posts #294 and #429, but the information in your post #590 has muddied the waters a bit. I'm going to go ahead and post this (somewhat muddy) understanding, and tackle it again later (maybe).

Any input would be welcome.

MY UNDERSTANDING

The State of Wisconsin currently has authority to have $200 million of bonds issued under this Federal program (the “volume cap allocation”). The State allocates portions of this amount to cities within Wisconsin.

The cities issue bonds on behalf of companies, though the companies must find the investors. The city then loans the proceeds to the company, the loan being secured by the facilities and equipment (per post #590).

But the company, not the city, is responsible for interest payment and principal repayment to investors. Even though the bonds are issued by the city, the city does not guarantee payment.

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-- Since the city issued the bonds, does the city act as middleman, receiving payment from the company and sending it to investors?

-- Since the loan from the city to the company is secured by the facilities, if the company defaults perhaps the city would perform some kind of seizing and disposition of assets in an attempt to repay investors?

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The benefits of the program are

1. Since the interest is federally tax-free, investors may be willing to take a lower interest rate.

2. Since the “city technically owns title to the facility” (post #294), the company gets tax breaks. (The facility will be given to the company in 20 years or so - this may simply mean that once the loan to the city is repaid, the facility is no longer encumbered.)

3. I assume there is a sense of safety for investors in that they assume that the city has done DD on the company, even though there is no guarantee of payment from the city or state. So it should be easier for a small company to find investors than would otherwise be the case.

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AMOUNT AVAILABLE

And there is $20 available for GBOE (if they can find the investors.) (per post #429)