L.A. pushes bonds to spur industrial development.

The City of Los Angeles is trying to jump-start a little-used lending program under which local manufacturers can issue industrial development bonds to finance expansions of their operations.

The industrial development bond (IDB) program was created by the federal government in the 1980s but until recently was hardly used in California because of tax and legal ambiguities.

The City of L.A.'s efforts to increase the use of IDBs follows recent clarification of those ambiguities by federal and state lawmakers.

Under the IDB program, manufacturers can directly issue bonds for up to $10 million, which they must then repay, typically over 20 to 30 years. Interest paid to buyers of the bonds is free of state and federal taxes, and the bonds themselves are backed with letters of credit from commercial lenders.

Such bonds benefit manufacturers by offering funding at an interest rate that is usually 1.5 to 2 points below prime, which is possible because of their tax-free status.

Meanwhile, city governments and other go-betweens can promote the bonds at little or no cost to themselves, since the bonds are repaid by the manufacturers and hackled with letters of credit from commercial lenders, which determine the creditworthiness of each bond issuer.

The L.A. city government launched its IDB jump-start program about a year ago, and its efforts are expected to result in four local manufacturers raising a total of $10 million to $15 million this year through IDB bond offerings.

That amount could more than double in 1998, as city authorities and financial advisors work to educate other local manufacturers and banks about the advantages and procedures for issuing low-interest IDBs.

Spearheading the recent jump-start is the Los Angeles Local Development Corp., which was hired by L.A.'s Industrial Development Authority last year as financial advisor to promote the bonds.

Many of the Local Development Corp.'s efforts are just beginning to bear fruit, with a first round of IDB offerings by local manufacturers expected to occur in the next two months.

Under the revitalized IDB program, L.A. officials are focusing on manufacturers in the city's government-designated empowerment zones, enterprise zones and revitalization areas, according to Michael Banner, executive director of L.A. Local Development Corp., a non-profit group that works exclusively with the city government.

Two companies - Wing Hing Noodle Co. near South Central L.A. and Kairak Inc. of Harbor City - both learned about IDBs through their contacts with Banner and other L.A. city officials.

Wing Hing has applied for a $3 million bond placement, which it will use to purchase real estate and machinery for an expansion at its present location. It expects the bond issue, to be backed by East West Bank, to occur within the next couple of months.

"We looked into your traditional loan avenues and had some (tentative) approvals through the traditional routes," said Wing Hing Vice President Kenny Yee. However, he added, many banks were hesitant to make the loans because of the large sum involved.

By comparison, the IDB route took some of the lending risk away from Wing Hing's lenders and also lowered the cost of the money itself, he said.

Wing Hing began its bond application process last November and expects to issue its IDBs around May, according to Yee. He added that the time required for the entire issuing process - about six months - is not much more than the usual time required to secure more traditional loan financing.

Meanwhile, Craig Kushen, president of Kairak, said the city's efforts to help him issue a $2 million IDB were an important factor in his decision not to relocate his business to another city. Kairak, which makes refrigeration equipment, will use the funds from its IDB issue to purchase a new building and new equipment to expand its manufacturing.

"The IDB is a much more economical long-term way to go, to allow manufacturing jobs to stay here in L.A.," Kushen said.