bond-basics

Borrower

The Borrower, often called a Conduit Borrower or conduit obligor, is the party borrowing Bond proceeds from the Issuer and, in such case, is responsible for making Interest payments and repaying Principal of the Bonds as it becomes due.

Sometimes the Issuer issues the Bonds as a Conduit Financing through which another party borrows the proceeds from the Issuer or leases from the Issuer the facility or facilities financed with the Bond proceeds.  The party borrowing those proceeds is the Borrower, often called a Conduit Borrower or conduit obligor.  The Issuer uses the funds received in the repayment of the loan or the rent payments under the lease from the Borrower to repay the Bonds.

Borrowers in a Conduit Financing can be other state or local governments (e.g., a state pooled financing, such as a state revolving fund, that loans moneys to local governments to finance certain projects like clean water or wastewater projects) or private Borrowers (e.g., nonprofit entities).  Tax-exempt Conduit Financings involving Borrowers that are not state or local governments must have their facilities or uses of the proceeds of the Bonds fall within one of the permitted categories under the Code in order for such facilities or uses to be eligible for financing with Private Activity Bonds that are Tax-Exempt Bonds under the Code.

Life’s a Party

Learn more about the various parties involved in a municipal securities transaction and their roles.


See Also

Conduit Financing

Financing in which the Issuer issues the bonds to finance a project to be used primarily by a third party.

Issuer

A state, political subdivision, agency or authority that borrows money through the sale of bonds or other securities. 

Borrower’s Counsel

An attorney or firm of attorneys serving as counsel to the borrower in connection with a conduit financing.

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Private Loan Financing Test

One of the tests used in establishing whether a bond is a private activity bond (PAB) for tax purposes. The private loan financing test specifically determines whether more than $5 million or 5% of the proceeds of a bond issuer are used to directly or indirectly finance loans to one or more non-governmental persons.