The bonds for industry process.

The process for securing Bonds for Industry financing normally takes between 90 and 120 days. The financial advisers will assist each company through the following six stages:

1. Inducement. To induce a project, the issuing authority adopts a formal resolution approving the project at a public meeting. The borrower must complete a pre-application process before a project can be induced. All costs incurred after the inducement resolution is adopted are eligible to be financed or reimbursed from bond proceeds.

2. Public hearing. A public hearing must be held in the local city or county in which the project is to be constructed. The finance team arranges for the hearing before the city council or board of supervisors, provides all necessary documentation and is present at the meeting if required. Normally the borrower is also present in case questions arise regarding the project.

3. State application and tax questionnaire. The financial advisers work with each borrower to help prepare and submit a complete state application, a tax questionnaire and other necessary documentation. The borrower must complete the state application process before seeking state approval.

4. State Approval. The state of California holds two hearings on each project. The first hearing is with the California Industrial Development Financing Advisory Commission (CIDFAC) which determines whether the project meets the state criteria for issuing industrial development bonds. The second hearing is held by the California Debt Limit Allocation Committee (CDLAC) which hears requests regarding all qualified projects and provides allocation for the actual issuance of the bonds. It is normally necessary for the borrower to attend the meetings of these two bodies. The Bonds for Industry's Finance Team will also attend the hearing to assist the borrower.

5. Bond documentation. Once the state approval has been granted, the finance team prepares all bond documents and works with each borrower and each letter of credit bank in order to complete the documentation process.

6. Bonds sold and funds are available. After the final documents are signed by all parties, the bonds are sold and remarketed by the underwriter team, Artemis Capital Inc. and Bankers Trust. Funds are made available for draw-down through the trustee, First Trust.

The time between pre-application and state approval can range from one month to two months, depending upon the availability of required documentation. Bond funds are available within 60 days of state approval. Generally, the entire process takes 120 days. If timing of bond proceeds becomes an issue, banks providing the letter of credit routinely provide bridge financing until bond proceeds are available.

The Bonds for Industry program is a composite program, which means that bond issues for several borrowers are grouped for purposes of selling the bonds. This has the effect of lowering the overall cost of issuance. However, each borrower has a separate trust debt and there is no cross-debt responsibility between individual borrowers.

The cost of bond financing is divided into two segments: the front-end costs and the ongoing effective annual interest rate.

The program charges an all-in fee for all issuance costs of 4.25 percent. Of this, 2 percent can be financed from bond proceeds. The remainder is paid directly by the borrower and is generally regarded as an equity contribution to the project. This total fee includes the cost of bond counsel, financial advisers, underwriter and underwriter counsel, trustee and trustee counsel, printing, rating, state fees, and master letter of credit fees. This fee does not cover three costs: borrower attorney costs, standby letter of credit bank costs, and any local fees which a city or county may charge for their participation.

There are four ongoing components to the effective annual interest rate of the bonds. The first is the base interest rate, which has averaged 5.1 percent over the last 12 years and 2.7 percent over the last two years. The adjacent chart shows this rate by year since 1983. This interest rate is variable and is subject to change every seven days.

The second component is a standby letter of credit (LOC) fee charged by a bank as security for repayment of the bonds. The annual fees for this LOC have ranged from 0.3 percent to 2 percent depending on the credit status of the borrower. An administrative fee of 0.4 of 1 percent is charged for all administrative costs including remarketing, trustee fees, annual rating fees and general administration.

Additionally, the master letter of credit bank charges 0.3 of 1 percent to back any standby letter of credit from a bank rated A or better. If the standby bank has a lower rating, the master letter of credit cost may be higher. A typical example: Average base rate: 2% to 2.5%, Standby LOC: 1.5%, Administrative costs: 0.40%, Master LOC: 0.30%, Effective rate: 5.20% to 5.70%. THE BONDS FOR INDUSTRY PROGRAM

The Bonds For Industry program sponsored by the California Statewide Communities Development Authority (CSCDA) provides manufacturers with below-market financing at tax-exempt interest rates. To stimulate growth, the interest on these bonds is exempt from federal and state income tax.

The primary goal of this financing program is to enable manufacturers to purchase land, buildings and capital equipment to expand their operations. An added benefit for California is helping communities create new jobs and strengthen the local economic base.

The sponsor, CSCDA, is an alliance of three prominent non-profit organizations in California: the California State Association of Counties (CSAC), the California Manufacturers Association (CMA) and the League of California Cities (LCC). In addition, the Bonds for Industry program is endorsed by the state of California's Department of Trade and Commerce.

WHO IS ELIGIBLE?

To qualify for the Bonds for Industry tax-exempt bond program, a borrower needs to meet the following eligibility criteria:

1. Manufacturers or processing only -- The firm must be engaged in manufacturing, processing or value added.

2. Less than $10 million. The total project cost must be at least $500,000 and may not exceed $10 million.

3. New jobs -- The capital expansion must create new jobs.

4. Letter of credit -- The borrower must secure a standby letter of credit from a bank with a substantial asset base.

5. Local support -- The project must have city or county support.

WHAT ARE THE BENEFITS FOR THE BORROWER?

The Bonds for Industry program provides numerous benefits to qualified manufacturers. The most significant benefit of the program is that a team of experts manages all of the details and complexities associated with the bond financing, from local and state approval to sale of the bonds. The manufacturer is free to concentrate on the day-to-day operation of business rather than having to resolve the myriad of issues which accompany a bond application. The Bonds for Industry team has financed over 50 companies and over $200 million. Other advantages are:

* Tax-exempt rates -- Lowest capital market rate, averaging 5.1 percent during the last 12 years.

* Long term -- Terms of up to 30-years.

* No pre-payment penalty -- No pre-payment penalty for paying off bonds early.

* Assumable -- The bonds are assumable if the business is sold to a qualified user.

* Comprehensive funding -- The funds can be used for construction and take out to finance land, buildings and new equipment.