CDFA Spotlight: California Deal Makes Use of FHLB Letter of Credit for IDB Issuance

The California Enterprise Development Authority (CEDA) and California Industrial Development Financing Advisory Commission (CIDFAC) have closed on the first industrial development bond (IDB) deal to utilize a new provision that allows Federal Home Loan Banks (FHLBs) to issue a standby letter of credit on tax exempt bonds.

A total of $9 million in bonds have been issued on behalf of Pocino Foods in Industry, CA. FHLB San Francisco is the issuing standby LOC bank, and City National Bank issued the direct pay LOC. Kutak Rock served as bond counsel on the deal.

Of the $9 million issuance, $7.65 million is in the form of tax exempt IDBs and $1.35 million in taxable IDBs. Pocino Foods produces meat and poultry products sold at Smart & Final, Subway, Ralph's Markets and Safeway. The expansion project consists of upgrading the facility’s infrastructure and the purchase of new equipment to comply with current food processing industry standards. The company, located in Los Angeles County, currently employs 190 people and plans to add an additional 20 employees upon completion of the expansion project.

“Given the current economic financial climate, it is important to make additional credit enhancement tools available to get deals done,” CDFA President and CEO Toby Rittner said. “This deal is a perfect example of the role the new FHLB standby letter of credit program can play in allowing continued and expanded use of IDBs to help small manufacturers invest and create new jobs.”

The FHLB and CDFA worked for over a year to get this new program provision approved. The grass-roots campaign by CDFA members to their Congressional delegates was a vital part of the coalition supporting the bill. CDFA endorsed the proposed legislation as an effective way to strengthen economic development efforts, particularly the use of IDBs. The FHLB provision was signed into law as part of the housing bill in July.

The first transaction to use the new program occurred in October when FHLB Indianapolis issued a standby LOC credit on a healthcare revenue bond in Indiana.

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This article is intended to provide accurate and authoritative information in regard to the subject matter covered. The author and CDFA are not herein engaged in rendering legal, accounting or other professional services, nor does it intend that the material included herein be relied upon to the exclusion of outside counsel. CDFA is not responsible for the accuracy of the information provided in this fact sheet. The information provided has been collected from a variety of sources. Those seeking to conduct complex financial deals using the tools mentioned in this document are encouraged to seek the advice of a skilled legal/consulting professional.