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SIEDA (Southeastern Illinois Economic Development Authority) SIEDA represents
sixteen counties in southeastern Illinois including Jefferson
County. They have bonding authority up to $250 Contact: Andrew Hamilton, Financial Advisor, 866-325-7525 or email: andrewjhamilton@andrewjhamilton.com. Overview On August 20, 2004, Public Act 93-0968 was signed into law introduced by Representatives William Grunloh, Kurt Granburg and Julie Hamos to create the Southeastern Illinois Development Authority (SIEDA). This Authority provides a powerful new financing tool for economic development in the Southeastern Illinois Counties of Clark, Clay, Crawford, Cumberland, Edwards, Effingham, Fayette, Hamilton, Jasper, Jefferson, Lawrence, Marion, Richland, Wabash, Wayne, and White. Background The Authority has the ability to issue up to $250 million in bonds for economic development purposes. SIEDA will be a general development agency for the counties located in the territory and will be one of only seven such organizations within the State of Illinois. Products SIEDA can issue bonds on behalf of businesses in which debt service is payable exclusively from the earnings of the borrower. In issuing revenue bonds for the borrower, SIEDA acts as a "conduit" or "middle-man." The bonds are sold to insurance companies, banks, mutual funds or brokerage houses on behalf of individuals. The proceeds of the sale are made available to the borrower for the project. The borrower then pays the money back directly to those who bought the bonds. Advantages The major advantages of SIEDA include providing savings of 2-3% lower than conventional financing for manufacturing, allowing all types of non-manufacturing a savings of 1.0-1.5% through a state mechanism that provides a quasi-guarantee of the loan and low operational overhead. SIEDA generally wouldn't seek donations or charge any type of membership fee. SIEDA would operate from fees charged companies to issue these bonds. The Companies that pay these fees recapture the fee by the lower interest rate savings, generally within twelve months of a 20 - 30 year bond. Benefits The benefits of SIEDA Bonds include: The Authority has the power to issue Tax Exempt Industrial Revenue Bonds (IRBS). The Internal Revenue Service tax law allows public entities, such as SIEDA to lend their tax exempt status to private entities that are involved in manufacturing under certain conditions. SIEDA issues bonds that are purchased by investors. The interest income received by these investors is exempt from federal income taxation. Therefore they are generally willing to accept a lower rate of return on the bonds, because the after-tax benefits would accrue the same to them. This lower rate is then passed though to the borrower. Tax Exempt issues are generally 200 to 300 basis points (2.0%-3.0%) below prime rate. In today's market a healthy borrower could receive an all-in rate of 2.5% to 3.0%. Volume Cap The State of Illinois is entitled to an amount of tax-exempt Volume CAP equal to $80 in 2004. The State distributes this allocation to cities and state agencies. Allocation of the CAP is very competitive. There is generally four times more requests than CAP available. SIEDA is eligible to request allotment of this CAP from a $191 million separate State Agency Pool in January of each calendar year. There are two other allocation rounds available to SIEDA in June and July of each calendar year. A borrower can always option to seek these tax-exempt bonds, from a municipality like a City or Village for example, but a municipality does not have access to the $191 million State Agency Pool. Although the statewide finance authority has access to this pool and can issue these bonds, the borrower would have to compete with other state-wide applicants to score high enough on a scoring system to obtain financing. In any case, these other issuer options would still be available if SIEDA were activated. The key is which entity would be able to obtain the CAP. With SIEDA, the borrower would have and additional entity available to access the rare CAP allocation. Quasi Guaranteed Bonds SIEDA has the additional ability to issue taxable quasi-guaranteed bonds for NON-manufacturing purposes, for example, warehouse companies, office buildings, commercial developments, etc. These NON-manufacturing projects do not qualify under the federal tax code for tax exempt financing nor does manufacturing activities spending over $10 million. These bonds are not a full faith and credit guarantee, but are referred to as Moral Obligation bonds. The legislation that created SIEDA, had written into the Act a process whereby, if there was ever a default, the SIEDA Chairman would notify the Governor. The Governor would notify the legislature and put into the Illinois State budget an appropriation of State monies sufficient to cure the default. The legislature is not legally obligated to make this appropriation, but has a moral obligation to do so. In reality, the State would most likely cure the default because if they didn't, it would affect the State's overall bond rating on billions of dollars. It would be mathematically less expensive to appropriate the defaulted amount, than to risk a downgrade of the State's bond rating. Secondly, bond rating agencies, such as Standard and Poors have rated Moral Obligation bonds as one rating level below the State's overall bond rating. The State of Illinois is presently at AA+ (Double-A plus), so Moral Obligation bonds would be A+ (Single-A plus). Borrowers generally may not have a reason to be rated, but if they were rated, they likely are not strong enough to receive an investment grade rating (top four rating levels AAA, AA, A & BBB). Therefore, these companies can piggy-back in the State's financial strength to enhance their rate of interest.
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