501(c)(3) Bonds

Government agencies issue bonds to finance a variety of economic or public development projects for private and public entities. When investors purchase bonds, they essentially lend money to the borrower through the issuer. In return for the bond proceeds, the borrower promises to pay the investors/bondholders the principal amount plus a specified rate of interest over the life of the bonds based on the bonds debt service payment schedule. In this way, a bond is similar to a complex loan.

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$5.5 billion

Total green and social bonds issued by IBank

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60,627

Jobs that have been created through bond-financed projects in California

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$55 billion

Total bond activity

Municipal Bonds

Bonds issued by government entities are called municipal bonds. The proceeds of the bonds are used to finance infrastructure projects that benefit the community such as roads, schools, bridges, sewers, parks or water treatment plants. Most bonds issued by government entities are tax-exempt. This means interest on these bonds is excluded from gross income taxes for federal tax purposes. In addition, interest on the bonds is exempt from the state of California interest income taxes. IBank issued bonds, including federally taxable bonds, will be exempt from the state of California interest income taxes.

What is a conduit bond issuer?

As a conduit issuer, IBank does not underwrite bonds. IBank issues bonds on behalf of a borrower and then lends those proceeds to that borrower. The bonds are special, limited obligations payable solely by the borrower’s payments. The borrower provides security to the bondholder and agrees to repay the bonds.

501(c)(3) Bonds and Public-Private Partnership (P3s)

It is tax-exempt financing to eligible nonprofit public benefit corporations for the acquisition and/or improvement of facilities and capital assets. Qualified 501(c)(3) bonds are tax-exempt qualified private activity bonds issued by a state or local government, the proceeds of which are used by a 501(c)(3) organization to continue their mission and exempt purpose.

In financing certain projects for 501(c)(3) nonprofit public benefit corporations, P3s can be employed. P3s offer Design Build Finance, Operate and Maintain delivery models. P3s can combine low-cost privately issued tax-exempt debt, and/or design-build delivery, and private operations and maintenance to manage the overall cost of project.

A P3 will allow a 501(c)(3) nonprofit owner with a selected development team and the governmental user of the project to join forces and collaborate. The governmental user or entity such as a university, community college, or healthcare facility defines the project, the development team delivers the design and cost analysis, and then the 501(c)(3) nonprofit, as a borrower, issues the bonds and engages the development team by contract to deliver the project based on the agreed upon provisions. IBank can issue tax-exempt and/or taxable bonds for 501(c)(3) nonprofit organizations’ bond financing projects with or without a P3 structure. P3s usually involve long-term contracts of up to 30 to 50 years and may cost millions of dollars to more than a billion dollars. IBank’s Policies and Procedures for Conduit Revenue Bonds allow issuance of large scale bonds over a billion dollars with maximum final maturity up to 50 years.

Eligible 501(c)(3) Bonds Applicants

Typical examples of nonprofit corporations include but are not limited to cultural facilities such as museums, libraries, aquariums, zoos, and historic preservation; educational facilities such as universities, colleges and schools; charitable organizations and foundations; recreational facilities such as community centers, local sports facilities, and YMCAs; energy-efficiency projects for healthcare facilities (with a P3 structure); research institutes and centers; organizations that promote social benefits such as the prevention of cruelty to women, children and/or animals. IBank can assist in financing the eligible 501(c)(3) projects with housing components if the maximum cost of the housing component is up to 20 percent of the total project cost.

Eligible 501(c)(3) Bond Projects

Capital expenditures (e.g., acquisition of land, buildings, construction, rehabilitation, implementing energy-saving measures, equipment, furniture)
Refunding prior debt (current refunding, or taxable advance refunding)
Reimbursing prior expenditures (under certain conditions)
Working capital (as long as the working capital is used in line with the tax-exempt purpose of the project.)
Costs of issuance
Capitalized interest
Debt service reserve funds

Examples of IBank Issued Bonds

IBank issues bonds for a variety of projects throughout the state including museums, educational facilities and performing arts centers, research institutes, charitable organizations, energy-efficiency projects for healthcare facilities, manufacturing facilities and more. Some of the most iconic projects that have been financed with the help of IBank issued bonds include projects for the Petersen Automotive Museum, the Academy Museum of Motion Pictures, the J. Paul Getty Museum and Villas, The Broad, Segerstrom Center for Arts, Los Angeles County Museum of Art, California Academy of Sciences, San Francisco, Columbia College, UCSF 2130 Third Street, The J. David Gladstone Institutes, The Scripps Research Institute, The Rand Corporation, SRI International, Goodwill, YMCA of San Francisco, The Exploratorium, the B Street Theatre (Sophia), SMUD Museum of Science and Curiosity (MOSAC), Planned Parenthood, Adventist Health, San Francisco Aids Foundation, PIH Health Energy Projects, and more. Check out some of the projects that have been financed with the IBank issued bonds.

Examples of IBank Issued Bonds

Frequently Asked Questions and Fact Sheet

IBank Issued Bonds

Q: What are the credit standards for 501(c)(3) bonds?

A: Bonds issued by IBank must meet established minimum credit rating standards, based on the credit of the applicant or a credit enhancement from a bank, insurance company or other guarantor acceptable to IBank. For details, please refer to IBank Policies and Procedures for Conduit Bonds.

Q: Are there additional benefits to a 501(c)(3) bond over a tax-exempt bond?

A: This bond type is available only to qualified 501 (c)(3) organizations. As with other tax-exempt bonds, 501(c)(3) bonds benefit borrowers because they pay less interest on these bonds than they would on a taxable bond or bank loan.

Q: What are the benefits of a 501(c)(3) bond financing?

A: IBank issued 501(c)(3) bonds feature low interest rates, long-term financing, flexible terms as well as allowing borrowers to retain endowments and accumulated funds and allows the project to be completed now and repaid from future revenues.