Industrial Revenue Bonds: Company's Role in the Process
The average amount of time for completion of the bond approval process is eight to ten weeks. However, since several agencies work on the package, additional time is occasionally required.
While an agreement is being reached with the North Carolina Department of Commerce’s Commerce Finance Center that the project can be financed with IRBs, the company plays a direct role in four areas of the approval process:
1. Inducement: As soon as a bond counsel has been named and obtains basic information on the project, a meeting is set for the company to meet with the county bond authority and execute an inducement agreement between the county and the company. Counsel will have prepared the agreement and given it to the county attorney.
It is imperative that the inducement resolution is executed early. Federal and state law permit a company to reimburse itself for capital expenditures up to 60 days prior to the inducement resolution. However, the company may incur certain expenses prior to inducement such as survery, soil testing and preliminary architectural and engineering fees. There is neither financial nor legal liability involved with the agreement. It is simply an agreement to do business.
2. Pre-Application Conference: This meeting is in the form of a telephone conference call and is arranged by Commerce Finance Center staff. The company learns what is required by agencies involved and the application is discussed. The legal work proceeds but the approval process by Commerce Finance Center is put on hold until full application is received.
3. Letter of Credit: The company negotiates the letter of credit with its bank. The bank sends the company a commitment letter with a copy to the North Carolina Local Government Commission. All bond issues must be supported by a letter of credit so it is important that the company secures a commitment early in the process. The letter of credit bank must be rated investment grade or better.
4. Bond Placement: It is the company's responsibility to find a buyer for the bonds. Most often, however, the bank that does the letter of credit will place the bonds and may purchase them.