HEHFB Bond Program
INTRODUCTION
General
The Health, Educational and Housing Facility Board of the City of Memphis, Tennessee is a public nonprofit corporation and instrumentality of the City of Memphis, Tennessee (the “City of Memphis”) duly organized and validly existing under the laws of the State of Tennessee (the “HEHFB”, “Board” or “Issuer”). The Issuer was duly organized on June 11, 1984, pursuant to and in accordance with the applicable legal provisions of Part 3 of Chapter 101 of Title 48 (Section 48-101-301 et seq.) of the Tennessee Code Annotated, as amended (the “Act”); whereby the Issuer has been continuously organized and operating under the Act since such date, and no dissolution proceedings under the Act have been approved and duly adopted by the Issuer.
The Issuer is a self-funding entity and does not receive any funding or related financial assistance from the City of Memphis, Shelby County, Tennessee (“Shelby County”), the State of Tennessee or any other governmental entity or agency. The Issuer is solely funded through fees assessed in connection with its Bond Program and its Multifamily Housing PILOT Program. It is the intention of the Issuer to conduct its activities consistent with its statutory and public purpose pursuant to the applicable legal provisions of the Act, any and all other laws of the State of Tennessee (the “State” or “State of Tennessee”), and with the enactments of the local legislative bodies of the Council of the City (the “City Council”) applicable to the Issuer.
Board of Directors
The Act currently provides that the Issuer is to be governed by the board of directors (the “Board of Directors”) of not less than seven (7) directors, and not more than nine (9) directors, who are appointed by the Mayor of the City and confirmed by the City Council. The Act provides that a director is to hold office for staggered terms, wherein for the initial term the City Council will determine if a director is to hold this office for two (2), four (4), or six (6) year terms, and that all subsequent terms of a director are to be for six (6) years.
The Act provides that if at the expiration of any term of office of any director a successor has not been appointed, then the director whose term of office has expired is to continue to hold office until the director’s successor is duly appointed.
The Act further provides that a director is to serve without compensation, except that the Issuer may reimburse any director for actual expenses incurred in the performance of his or her duties. The incorporators, members, directors, and officers of the Issuer are not personally liable for any costs, losses, damages, or liabilities, including payments on the bonds, notes or other obligations caused or incurred by the Issuer in connection with any transaction.
Statutory Authority
The Issuer is empowered by the Act, among other things, to: (i) acquire, improve, repair, extend, equip, furnish, lease, maintain and/or dispose of one or more projects pertaining to medical care and hospitals, education and multifamily housing; including all real and personal properties which the Board of Directors of the Issuer may deem necessary in connection therewith; (ii) maintain, manage, and enter into certain agreements, in furtherance of the statutory and public purpose, for the maintenance, and management of any project, including a project with a public purpose to promote the health, welfare and safety of the citizens of the State of Tennessee; and (iii) borrow money, and issue and sell its revenue bonds which are payable solely from the revenues and receipts from the applicable revenues of the project, or from other sources, as security for the payment of the principal of, and premium, if any, and interest on, any bonds so issued and any agreements made in connection therewith.
Statutory and Public Purpose
The State of Tennessee, pursuant to and in accordance with the Act, has determined and declared that it is for the benefit of the people of the State, the increase of their commerce, welfare and prosperity and the improvement and maintenance of their health and living conditions. It is essential for the Issuer to exercise its statutory authority and powers to, among other things, acquire, own, lease, dispose of, and/or provide financing for the acquisition, development, and maintenance of one or more projects pertaining to: (i) clinics and hospital institutions to ensure that people of the State, particularly the elderly residents, have access to adequate medical care and treatment; (ii) institutions for higher education and educational facilities for individuals with physical and/or intellectual disability, to ensure that the youth of the State be given the fullest opportunity to learn and develop their intellectual and mental capacities; and (iii) multifamily housing residential rental facilities to provide quality, safe, affordable, and sanitary housing for persons of low and moderate-income, elderly persons, and/or handicapped persons, in connection with a structure, facility, machinery, equipment or other property suitable for use by such multifamily housing facilities in connection with its operations or proposed operations, as set forth and more particularly described in the Act.
BOND PROGRAM
General
An applicant (i.e. the Borrower, defined herein as the “Applicant”) may submit the following types of Bond applications to the Issuer for consideration and approval by its Board of Directors: (i) new bond issuance; (ii) refunding of a prior bond issuance; or (iii) reissuance of a prior bond issuance. The Issuer, pursuant to and in accordance with the Act, is authorized to exercise its statutory authority and powers to, among other things, acquire, own, lease, dispose of, and/or issue its bonds, notes or other obligations to provide financing for the acquisition, development, and maintenance of one or more projects pertaining to: (i) health; (ii) education; and (iii) multifamily housing.
No bond financing will be approved by the Issuer unless the Board of Directors has determined that such proposed bond financing is in the public interest as required under the Act. All Applicants will be required to appear before the Issuer at a regular meeting of the Board of Directors to respond to questions prior to approval of any Bond application and related financing documentation.
Issuer and Bond Trustee
In connection with each issuance of bonds or notes for any eligible project, as defined under the Act, the Issuer requires that all Applicants must utilize the services of a Bond Trustee (the “Trustee”). The Trustee acts as representative of the bondholders, generally administers the bonds or notes and its scheduled payments and is authorized under the applicable financing documentation to take certain actions and enforce certain rights and remedies on behalf of the applicable bondholders or noteholders therewith. The Trustees are typically corporate trust departments of large national or regional banks. The Issuer retains final approval of any bank or related entity selected as the Trustee.
The Issuer will assign to the Trustee its covenants and obligations to timely pay from the sources provided in the Indenture and in the Loan Agreement the debt service payments on every bond or note issued under the applicable financing documents at the place, on the dates, and in the manner provided therein and according to the true intent and meaning thereof. In connection with the issuance and delivery of each bond or note, the Issuer shall appoint and designate the office of the Trustee as the place of payment for the applicable debt being issued, and also shall appoint and designate the Trustee as the paying agent for the applicable debt being issued, such designation and appointment therewith shall remain in full force and effect until written notice of change is filed as the associated financing documentation.
Limited Liability of the Issuer and the City of Memphis
Although the Issuer is a public instrumentality of the City, the City is not liable for the payment of the principal of or interest on any bonds, notes or other obligations of the Issuer, or for the performance of any pledge, mortgage, obligation or agreement undertaken by the Issuer pursuant to and in accordance with any financing documentation, particularly under the Indenture (as defined herein), and the Loan Agreement (as defined herein).
The bonds and notes that will be issued are not general obligations of the Issuer but are limited obligations of the Issuer payable solely from the revenues and receipts derived from the applicable revenues of the project(s), or from other sources, specifically pledged as security for the payment of the principal of, and premium, if any, and interest thereon. Except from such source, none of the Issuer, the State of Tennessee, the City of Memphis, or any political
subdivision or agency thereof or any political subdivision approving the issuance and delivery of the bonds or notes are obligated to pay the principal of, premium, if any, or interest thereon or any costs incidental thereto. The bonds or notes shall not be deemed to constitute a debt or a pledge of the full faith and credit of the Issuer, the State of Tennessee, the City of Memphis, or any political subdivision thereof. Neither the State of Tennessee nor any political subdivision thereof, including the Issuer and the City of Memphis shall be liable for the bonds or notes nor obligated to pay the principal, premium, if any, or the interest thereon or other costs incident thereto, and neither the full faith and credit nor the taxing power of the State of Tennessee or any political subdivision thereof, including the Issuer and the City of Memphis, is pledged to the payment of the principal of or the premium, if any, or the interest on any bonds or notes issued by the Issuer or other costs incident thereto. The Issuer has no taxing power.
The Applicant shall covenant and agree that it shall indemnify and hold harmless the Issuer and its officers, directors, officials, employees and agents, including the Trustee, from and against any and all claims of or on behalf of any person arising from any cause whatsoever in connection with the offer and sale of the bonds, notes, the proposed project or the financing thereof; including without limitation all costs, reasonable attorney fees, expenses, or liabilities incurred in connection with any such claim or proceeding brought thereon.
Methods of Sales for Financing Transactions
Public Sale – wherein the bonds or notes are offered for sale to the general public in the retail securities market. In connection with any public sale of bonds, such bonds shall: (i) involve the necessary public disclosure through an Official Statement (as defined herein) or other related public offering document or related disclosure; (ii) be purchased by a nationally recognized underwriter or broker-dealer; (iii) be rated or insured to provide at least an “A” rating by Moody’s Investors Service, Inc., Standard & Poor’s Corporation, or (iv) provide a substantially equal credit enhancement satisfactory to the Issuer.
Private Placement – wherein the bonds or notes are placed with a single purchaser through a private placement, whereby the marketing of the bonds or notes is limited to fewer than thirty-five (35) potential “Accredited Investors” as defined under Regulation D under the Securities Act of 1933, as amended. These transactions involve a placement agent, usually an underwriter who acts in a limited capacity to identify investors and facilitate the sale. Private placements are similar to a public offering but can allow borrowers to negotiate deal terms directly with investors. In connection with any private placement of bonds or notes, the Issuer will require that the bonds or notes and the applicable financing documentation contain provisions restricting transfers only to institutional investors, limiting participation in the purchase of the bonds or notes and setting minimum denominations on the bonds satisfactory to the Issuer.
Direct Purchase – wherein the tax-exempt bonds are acquired by an institution through a direct purchase. Many financial institutions, including banks, insurance companies, large corporations, including the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) have programs that allow them to purchase tax-exempt bonds directly from the Issuer.
THE ISSUER DOES NOT MAKE ANY RECOMMENDATIONS WITH REGARD TO THE PURCHASE AND SALE OF BONDS OR NOTES, NOR SHOULD ITS APPROVAL OF A FINANCING BE CONSTRUED AS A REPRESENTATION OF ANY SORT WITH REGARD TO THE FINANCIAL CONDITION OR SUITABILITY OF ANY FIRM RECEIVING FINANCING THROUGH THE ISSUER. ALL BOND OR NOTE PURCHASERS/INVESTORS ARE EXPECTED TO MAKE AN INDEPENDENT INVESTIGATION OF THE BONDS OR NOTES ISSUED BY THE BOARD AND THEIR RESPECTIVE SECURITY AND SOURCE FOR REPAYMENT THEREWITH.
Health Financing
The Issuer, pursuant to and in accordance with the Act, can exercise its statutory authority and powers to, among other things, acquire, own, lease, dispose of, and/or issue its bonds, notes or other obligations to provide financing for the acquisition, development, and maintenance of one or more projects (as defined in the Act) pertaining to (i) clinics, and (ii) hospital institutions, in connection with a structure, facility, machinery, equipment or other property suitable for use by such clinic and/or such hospital institution in connection with its operations or proposed operations, respectively, as set forth and more fully described in the Act.
Under the Act, “clinic”, except in the context of a hospital-based facility, means a not for profit, out-patient, nonhospital facility providing (i) primary healthcare, (ii) dental care, (iii) eye care, (d) child delivery or birthing facilities, or (v) any other out-patient healthcare service.
Under the Act, “hospital institution” means a city, county, metropolitan government, or other local governmental entity, or any institution organized for profit authorized by law to provide congregate elderly facilities or extended care, hospital, or nursing home facilities in the State or any finance subsidiary of such hospital institution.
Educational Financing
The Issuer, pursuant to and in accordance with the Act, can exercise its statutory authority and powers to, among other things, acquire, own, lease, dispose of, and/or issue its bonds, notes or other obligations to provide financing for the acquisition, development, and maintenance of one or more projects (as defined in the Act) pertaining to (i) institutions for higher education and (ii) educational facilities for individuals with physical and/or intellectual disability, in connection with a structure, facility, machinery, equipment or other property suitable for use by such institutions for higher education and/or such educational facilities for individuals with physical and/or intellectual disability in connection with its operations or proposed operations, respectively, as set forth and more fully described in the Act.
Under the Act, “institutions for higher education” means any institution organized for-profit or not for profit authorized by law to provide a program of education at the primary level, secondary level or beyond the secondary level in the State.
Under the Act, “educational facilities for individuals with physical and/or intellectual disability” means any institution organized for-profit or not for profit authorized by law to provide a program for educating and training individuals with physical and/or intellectual disability.
Multifamily Housing Financing
The Issuer, pursuant to and in accordance with the Act, can exercise its statutory authority and powers to, among other things, acquire, own, lease, dispose of, and/or issue its bonds, notes or other obligations to provide financing for the acquisition, development, and maintenance of one or more projects pertaining to any multifamily housing facilities to be occupied by persons of low and/or moderate income, elderly persons, and/or handicapped persons, as may be determined by the Issuer’s Board of Directors, in connection with a structure, facility, machinery, equipment or other property suitable for use by such multifamily housing facilities in connection with its operations or proposed operations, as set forth and more fully described in the Act.
Additionally, under the Act “multifamily housing facility” or “multifamily housing unit”, in the case of an eligible project as defined therein, may include or consist of single-family structures, on contiguous or noncontiguous sites, for such a project located in counties in the State having a population in excess of 800,000, according to the 1990 federal census or any subsequent federal census.
There are two main types of bonds that can be used to finance affordable multifamily housing projects: (i) governmental bonds that are defined as tax-exempt bonds issued to finance projects owned by a governmental entity, and (ii) private activity bonds that are defined as tax-exempt bonds issued to finance projects owned by a private entity, not-for-profit entity or a 501(c)(3) entity. Qualified Exempt Facility Bonds, a type of private activity bond, are the most common type of affordable multifamily housing bonds utilized by the Board and are issued pursuant to Section 142(d) of the Internal Revenue Code of 1986, as amended (the “Code”), and are eligible to receive the four percent (4%) low-income housing tax credits (“LIHTC”) allocation.
LIHTCs provide an economic incentive for the private markets to invest in affordable housing by providing a certain amount of tax credits (which reduce tax liability dollar-for-dollar) to affordable residential rental facilities based on a certain formula. Typically, LIHTCs are then sold to investors in exchange for an equity investment in the proposed project. In order to receive the four percent (4%) LIHTC allocation, at least fifty percent (50%) of a project’s aggregate basis must be financed with the proceeds of Qualified Exempt Facility Bonds. LIHTCs are not available for public housing units financed with the proceeds of governmental bonds.
“Qualified Exempt Facility Bonds” must satisfy the requirements of Section 142 of the Code, which requires that ninety-five percent (95%) or more of the net proceeds of any qualifying bond issue must be used to provide one or more qualified residential rental projects, being any project for residential rental property that meets the income set aside requirements set forth under Section 142(d) of the Code during the Qualified Project Period (as hereinafter defined). The income set aside requirements are: (i) the 20/50 Test, wherein 20% or more of the residential rental units must be occupied by individuals whose income is 50% or less of the area median gross income; or (ii) the 40/60 Test, wherein 40% or more of the residential rental units must be occupied by individuals whose income is 60% or less of area median gross income.
“Qualified Project Period” begins on the first day on which ten percent (10%) of the residential rental units in a project are occupied and ending on the latest of: (i) the date that is 15 years after the date on which fifty percent (50%) of the residential rental units are occupied; (ii) the first day on which no issued tax-exempt bond and maturity therewith is outstanding; or (iii) the date on which any assistance provided to the project under Section 8 of the United States Housing Act of 1937 terminates. If the issue date of such tax-exempt bond occurs after the first day on which at least ten percent (10%) of the residential rental units are occupied, then the Qualified Project Period begins on the issue date of such tax-exempt bond. For example, with many tenant-in-place rehabilitation projects, the Qualified Project Period begins when the tax-exempt bonds for the project are issued.
BOND APPLICATION SUBMISSION AND APPROVAL PROCESS
Bond Application Submission
All Bond applications must be completed and timely submitted a minimum of thirty (30) days prior to the Issuer’s scheduled regular meeting of the Board of Directors at which time the submitted Bond application will be considered for approval. The Issuer generally meets on the first Wednesday of each month at 12 Noon Central Time, subject to change as needed. Public meeting notices and regular meeting dates can be found on the Issuer’s website at http://www.mememphishehf.com.
All regular meetings for the Board of Directors are held both in-person at the principal office of the Issuer located at 65 Union Avenue, Suite 1120, Memphis, Tennessee 38103, and through its virtual Zoom platform, wherein such virtual Zoom link is posted on the Issuer’s website on a monthly basis.
To appropriately submit a Bond application to the Issuer, the Applicant shall: (i) email an electronic copy of the completed Bond application in portable document format (PDF) to the HEHFB staff (listed below); and (ii) pay the non-refundable application fee, which is immediately due and payable upon submission of the Bond application.
If errors exist within the submitted Bond application, then the HEHFB staff may, in their sole discretion, allow the Applicant up to ten (10) business days to make the necessary corrections and resubmit.
The submitted Bond application must contain the following subject line in the email:
“HEHFB Bond Financing (Name of Applicant) (Name of Project); (Month/Year)”
All Bond applications shall be collectively emailed to the individuals listed below:
Trey McKnight, Executive Director: Trey.McKnight@memphishehf.com
Stephanie Bryant, Director of Operations: Stephanie.Bryant@memphishehf.com
Charles E. Carpenter, Esquire: Issuer Counsel: Charlesc@386beale.com
Corbin I. Carpenter, Esquire: Issuer Counsel: Corbinc@386beale.com
Bond applications for all bond-financed properties that are participating in any current HUD program must include the: (i) HUD application; (ii) HUD approval notifications; and (iii) latest HUD REAC inspection report and/or other third-party related report, as applicable.
All Bond applications must be submitted in conformity and compliance with these Policies and Procedures. If the format of the submitted Bond application does not conform with these Policies and Procedures and comply with the submission guidelines set forth herein, then the Bond application will be deemed incomplete and will not be accepted or reviewed by the Issuer.
Upon submission of any Bond application, all application fees associated therewith must be paid in full prior to the HEHFB staff scheduling the Submittal Conference (as defined herein) and the Applicant subsequently appearing before the Issuer’s Board of Directors for consideration for approval.
The Applicant acknowledges and agrees that any and all Bond application fees paid to the Issuer are final and non-refundable, including if the Applicant voluntarily withdraws the Bond application after submission and payment is tendered.
PLEASE CLICK THE BELOW LINKS FOR THE BOARD’S COMPLETE BOND PROGRAM POLICIES AND PROCEDURES AND APPLICATION: