Letter of Credit Helps Guarantee Industrial Bonds
Published May 27, 2009
A business needs to grow to thrive, and California is finding ways to nurture growth even when financial times are tough.
In one case, the California Enterprise Development Authority turned a new federal provision to its economic advantage by helping Pocino Foods in the city of Industry in Los Angeles County, says Daniel J. Bronfman, president of Growth Capital Associates Inc.
CEDA is a government agency – local cities and counties created it – “and its role is very specific,” Bronfman says. “It issues bonds with low interest rates to finance various types of projects.”
The federal law passed in July 2008 was intended to support the struggling housing market by permitting Federal Home Loan Banks to back tax-exempt bonds with letters of credit. But its provisions also benefit agencies like CEDA that issue industrial development bonds.
Shortly after the law was passed, CEDA became one of the first issuers to use a support letter of credit from the Federal Home Loan Bank Board to complete a financing. This “credit enhancement” helps guarantee the bonds, making them more saleable.
Pocino Foods, which produces meat and poultry products, will use the $9 million in bond financing to cover $5.5 million of debt and spend $3.5 million for building renovation and equipment purchases.
Story by Renee Elder
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