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BOND GUARANTY PROGRAM

"State Small Business Credit Initiative Qualified"

Why use the Bond Guaranty Program?

  Because many companies who qualify for taxable and/or tax-exempt financing do not have the financial strength to access national capital markets, ADFA acts as a guarantor of the bond issue to make the bonds marketable to bond buyers nationwide. The guarantee provides the necessary credit enhancement for the bondholder and takes the place of a Line of Credit or Bond Insurance.

What is the financial strength behind the ADFA guarantee?

  The ADFA guarantee is backed by the Bond Guaranty Reserve Fund. This reserve is the first source of repayment if the borrower is unable to fulfill his obligations under the contract. Unrestricted cash reserves of ADFA may also be used to pay bondholders should the Reserve Fund become depleted. Liquidation proceeds of the failed project's assets will be offset against the outstanding balance of the bond issue. ADFA has the right to issue its own guaranty bonds to replenish the Reserve which can be repaid with the daily interest earnings on the State Treasury deposits. This is the final source of financial support for the outstanding guarantees.

Who checks up on ADFA to make sure that the Bond Guaranty Program is strong?

  The Program has been reviewed and rated A by Standard and Poor's. This rating is updated periodically to make sure that the quality of the guarantee is maintained. Standard and Poor's is one of the most respected financial rating agencies in the country. This A rating renders the bonds investment grade quality which makes access to the national capital markets a possibility.

Is there a cost associated with the ADFA guarantee?

  There is a one time guarantee fee of 5% of the principal amount of the bond issue. Other one time costs associated with tax-exempt bonds are estimated at 2% of the bond issue amount for composite bond issues. These additional costs include underwriter's discount, bond counsel fees, printing costs, Trustee fees and the bond rating fee.

How does the pooling concept of the ADFA Bond Guaranty Program work?

  Some costs associated with issuing bonds are approximately the same regardless of size. In order to minimize the effect of these costs, ADFA utilizes a pooling concept by combining several separate projects in one composite bond issue. Each borrower then pays its proportionate share of the single issue cost instead of each paying the full costs separately.

SSBCI Qualified:  A portion of the SSBCI funding from the U.S. Department of Treasury is going to be deployed along side Bond Guaranty loans.  To assist projects that need working capital or subordinated debt to fill gaps in the financing structure, SSBCI loans are also available as direct companion loans to private financial institutions to assist the financing of an economic development project. Proceeds can be used for capital improvements or working capital.

FOR MORE INFORMATION ABOUT THE ADFA BOND GUARANTY PROGRAM, OR ANY ADFA PROGRAM, PLEASE CALL 501-682-5900.

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