Federal Home Loan Bank of San Francisco has issued 11 standby letters of credit (LOCs) to support non-housing related tax-exempt bond issuance for public-purpose and industrial development projects, on behalf of member financial institutions.
In addition to those completed transactions, totaling $167mn in credit enhancement, an additional $110mn of similar standby LOC transactions are pending. Given the current economic environment, the use of a Bank standby LOC to credit enhance a tax-exempt bond transaction may help lower the overall cost of borrowing for bond-financed projects and stimulate economic development in communities served by bank members.
Standby LOCs for tax-exempt bonds can be used for a wide range of projects. With a Bank Standby LOC, a bond issuer, such as a municipality, hospital, university, nonprofit, or industrial manufacturing facility, may be able to realize advantages typically available only in AAA-rated structures, such as generally lower interest rates or more flexible terms.
Stephen Traynor, senior vice president of financial services and community investment at Federal Home Loan Bank, said: “The downgrading of bond insurers in the wake of the financial crisis left a significant void in financing for critical infrastructure and other valuable projects. We are pleased to offer a tool that our members can use to support these kinds of projects and boost economic development activities in their communities.”
