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Monday, July 7, 2008

Daily Observations - Public Financing for Infrastructure

As more and more lenders tighten their lending criteria, especially for construction projects alternative financing is becoming once again in vogue. Most people are aware of the hedge funds, and the conduit lenders and the mezzanine lenders, but are you aware of bond financing?

As an expert in the field of municipal finance for the last twenty five years I have seen many different variations of bond financing being used throughout the United States for different types of construction projects. But in the nutshell bond financing allows the developer to float a bond and have the infrastructure built for the project and paid for by an underwriter. The tax that supports the debts service is then passed through to the ultimate user of the property.

The purpose of this blog is not to teach you how to do bond financing, but to make you aware of its existence. Any large project that has public infrastructure needs over a couple million of dollars should be examining the possibility of utilizing bond financing for this cost. Also banks love bond financing because it becomes part of the exit strategy to pay off the construction debt.

For more on bond financing and how it benefits the developer check out my article that was published in the Scotsmen Guide Going to the Public, Understanding Public Financing.

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