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62 Guidebook for Developing and Leasing Airport Property bank has an equity requirement of at least $400,000 in cash, grants, soft-costs, capital improve- ments, and/or other equity to satisfy the debt coverage requirements of that bank or lending institution. 5.4 Debt Vehicles There are differing types of debt that are applicable to financing airport projects; their appli- cability and availability are dependent on the type of airport project being considered and whether the airport sponsor or a private developer is funding the development. The following sections provide a brief description of differing types of debt and how they can impact airport development projects. 5.4.1 Tax-Exempt Debt Tax-exempt debt is generally applied to development projects that satisfy a public purpose or need, and generally comes from or through a public-sector entity or a government, such as a city, a state (such as an EDA or infrastructure bank), or the federal government. Private lending insti- tutions can also offer a tax-exempt product, carrying an obvious benefit to the lending institu- tion's customers and owners. Tax-exempt funding can be complex and usually involves the need for bond counsel to give opinion on the taxable status of the project. Simply put, the project must provide a public pur- pose to receive the tax-exempt status, so detailed analysis is usually required to determine whether the project, or a portion the project, has a public purpose. For example, facilities that support public air transportation may satisfy the legal test, so a review of whether or not a project meets the objectives for some facet of tax-exempt financing is generally prudent. Public financing often carries with it an attrac- In order to create a leasable air- tive interest rate that can have significant impact on debt service over time. port asset, New Bedford Regional Another hybrid of tax-exempt funding is the special airport facility bond, Airport subleased a vacant facility whereby the credit rating of the airport sponsor is extended to a development, to the New Bedford Redevelop- again offering favorable rate attributes and access to attractive financing. This ment Authority for the develop- funding generally does not count against the airport sponsor's debt capacity ment of Bridgewater State because the project offsets debt with revenue. Again, bond counsel is a pru- College's new aviation training dent first step to determine whether the project would qualify for tax-exempt facility. This allowed the Authority funding. to utilize redevelopment bonds, which provided subsidized financ- Alternative Financing Structures ing for the project. This arrange- A contemporary strategy for financing a project, and found in one of the ment exemplifies the deft case-study examples, is for the airport sponsor to assist a private developer in utilization of available local financing a project with tax-exempt debt by assuming the debt and owner- resources with bond issuance ship of the improvements and recovering the future payment liabilities authority to provide financing through a leaseback agreement with the developer. Since tax-exempt financ- options for an airport develop- ing is typically available to government agencies only, eligibility for such funds ment project. In this case, not only require that the airport (a public entity) actually take ownership of the pro- was the local community improved posed facility and lease 100% of those facilities back to the private developer. through the addition of the new Such an agreement can save the private developer substantial financing cost, training facility, the airport was to the benefit of both the developer and the airport sponsor. A similar strat- able to convert a vacant liability egy has been applied in other circumstances whereby the tax-exempt debt into a revenue-producing asset. flows through the public entity, directly to the private development. Alterna- tive and hybrid financing structures can be complex, but, more importantly,