Bond Financing in Mississippi

Mississippi law provides for both taxable and tax-exempt bond financing for eligible companies as a means of financing industrial projects which, in appropriate circumstances, may be considerably more attractive than traditional financing methods.  The issuance of these types of bonds is subject to state and federal law, in particular federal tax law as it applies to tax-exempt bonds.  In general, these financing programs are administered at two levels:  statewide through the Mississippi Business Finance Corporation and locally through cities, counties, and regional planning and development districts and economic development authorities.

Mississippi Business Finance Corporation

The MBFC is a public body corporate and politic, created by statute, that allows eligible companies to obtain taxable or tax-exempt financing through a single contact.  MBFC Bonds are “limited obligation” or “revenue” bonds secured solely by the credit of the private enterprise benefiting from the financing (and any applicable credit enhancement, such as a bank letter of credit); the MBFC plays an important role in the recruitment of the industry and the issuance of the bonds, but then occupies a passive role throughout the life of the financing; and, so long as it is not in default, the private enterprise has complete control over (and responsibility for) the design, construction, operation, and maintenance of the project.  The MBFC statutes are flexible enough to accommodate almost any financing terms that may be proposed by the company although the most common structures are long-term fixed rate bonds or variable rate “lower floaters” with appropriate credit enhancements (i.e. a letter of credit).

The MBFC offers financing through various programs including the Small Enterprise Development Program (“SED”) and the Industrial Development Bond Program (“IRB”).  MBFC also offers a sales/use tax exemption for all projects financed through MBFC programs and corporate income tax credits for projects that participate in the Rural Economic Development (“RED”) program.  These incentives are discussed in the Tax Incentives section of this manual.

Small Enterprise Development Program

The SED program enables MBFC to make loans to qualified private companies that will increase employment and investment in Mississippi.  Under the program, the State of Mississippi issues general obligation bonds as the source of funding on a composite basis.  In such cases, MBFC matches several companies together to provide multiple financings in one issuance.  Thus, the costs of issuance are prorated among the participating companies; allowing businesses to obtain tax-exempt financing that would not otherwise be feasible due to the costs of a stand alone issue.

Under the terms of the SED program, each participating company may place several projects within the composite issuance as long as each company’s aggregate total is under $4 million.  The combination of lower-than-market interest rates and a fixed financing term make the SED program an excellent alternative for financings that come under the aggregate cap.  Sales tax exemptions are available and other incentives may be available depending on the project.  As with IRBs, ad valorem tax exemptions may be granted if approved by the appropriate city and county. 

SED loans are limited to 90% of the market value of the financed assets, and funds may not be used to refinance existing debt.  The maximum loan term is fifteen years.  Costs are similar to IRB issues; however, they are paid on a pro-rata basis by all the participating companies.  Because the bonds are issued on a composite basis and expenditures prior to inducement by MBFC may not typically be included in the bond financing, companies considering participating in the SED program should apply to the MBFC board as early as possible.

Industrial Revenue Bond Program

MBFC issues both taxable and tax-exempt IRBs with the purpose of reducing the interest cost of financing projects for companies utilizing the program.  In addition, sales tax exemptions on bond financed assets are available and ad valorem exemptions may be granted if approved by the city and county where the project is located.

In order to be eligible for IRB financing, a company’s project must be a private enterprise located, or that will be located, within the State of Mississippi.  Determination on whether the IRB bonds will be taxable or tax-exempt is based on state and federal regulations.  In the case of IRB bonds, “tax-exempt” means the interest on the bond is free of federal, state or local tax in the state of the issuer.  Currently, such tax-exempt financing is available only to manufacturing and processing businesses and is subject to the below enumerated federal tax requirements.  However, projects eligible for taxable financing of IRB bonds include various agricultural, processing, industrial and mining projects; certain research and development enterprises; and hotels, offices, shopping centers or other commercial operations approved by the MBFC board of directors.

MBFC requires that companies who want to issue IRB bonds obtain an irrevocable direct pay letter of credit or some other credit enhancement acceptable to MBFC.  The borrower is responsible for the application fee, costs of issuance, a one time processing fee to MBFC (for taxable bonds) or an annual fee payment to MBFC (for tax-exempt bonds), as well as any payments of fees to bond trustees, paying agents and remarketing agents.  A limited amount of IRB bond proceeds may be applied to bond issuance expenses.  The remainder of the proceeds must be used for the acquisition and construction of real property, machinery and equipment; for capitalized interest; and for necessary reserve funds as approved by MBFC.  The maximum term of an IRB bond is equal to 120% of the average life of the financed facility or 30 years, whichever is less.

The process from application to funding for IRBs is relatively quick, normally requiring about 60-90 days.