Municipal Finance: Structuring Tax-Exempt Finance Models for Local Governments

Lease-Purchase Agreements, Conditional Sales Contracts, and Certificates of Participation

Recording of a 90-minute CLE webinar with Q&A


Conducted on Wednesday, November 28, 2018

Recorded event now available

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Program Materials

This CLE webinar will discuss strategies for successfully structuring and documenting municipal lease-purchase and certificate of participation (COP) transactions.  The panel will explore the structure of lease-purchase and COP financings, the state and federal law issues relating to tax-exempt lease-purchase financing, common pitfalls to avoid when working with this financing model, and key terms to include to limit risk and optimize the utility of this strategy for local governments.

Description

State law authorizes local governments to secure financing through a number of different methods. Lease-purchase, conditional sales contracts, and COPs are a few examples of the financing tools authorized in many jurisdictions. Lease financing can be used to finance real property, vehicles, and equipment without traditional bond financing methods and voter referendum.

In a typical lease-purchase agreement, a third party acquires the real or personal property and makes it available to the municipality in return for monthly, quarterly or annual payments subject to market conditions and terms negotiated between the local government and lender. COPs are fractionalized interests in lease-purchase contracts sold as securities resembling bonds. They transform a lease or conditional sales contract into a marketable security and require an underwriter or placement agent, as well as all the necessary disclosures to investors and the Securities and Exchange Commission. Lease-purchase contracts can be issued on a tax-exempt basis if federal tax requirements are satisfied.

Tax-exempt financing offers local governments a flexible and powerful tool to fund the acquisition of real property and equipment or to finance improvements to existing buildings and property. Despite its many advantages, municipal lawyers must appreciate the risks, understand how these financing models fit into their clients overall fiscal strategy, and learn how to best leverage the engagement of other practitioners like bond and real estate counsel, to take full advantage of its benefits.

Listen as our panel of municipal finance attorneys provides critical insight on structuring tax-exempt lease financing agreements.

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Outline

  1. Tax-exempt lease financing overview
    1. Parties and common uses
    2. State law considerations
    3. Federal tax considerations
  2. Methods of tax-exempt lease financing
    1. Lease-purchase
    2. Certificates of Participation
    3. Lease revenue bonds
  3. Common drafting issues
    1. Key terms
    2. Nonappropriation
    3. Limiting risk (indemnification, nonsubstitution, essentiality, etc.)

Benefits

The panel will review these and other considerations:

  • What local government officials and municipal attorneys should know about lease-purchase financing?
  • What is the effect of a non-appropriation?

Faculty

Canova, Nathan
Nathan Canova

Atty
Dorsey & Whitney

Mr. Canova represents public and private sector clients across the country in a wide variety of tax-exempt and taxable...  |  Read More

Mecklenborg, Robert
Robert P. Mecklenborg, Jr.

Atty
Frost Brown Todd

Mr. Mecklenborg is a corporate attorney based in the firm's Cincinnati office. His practice is focused on a wide...  |  Read More

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