The linked Mintz Levin client advisory, which discusses a recent bankruptcy court ruling regarding the applicability of a make-whole premium upon a refinancing of corporate debt following such debt’s automatic acceleration upon bankruptcy under the terms of the governing documents, may also be of interest to holders of municipal bonds with call protection and/or early redemption premiums.  In  the context of make-whole premiums, court decisions suggest that the applicability of the premium upon a refinancing in bankruptcy will be governed by the wording of the debt documents, and that if an automatic acceleration  is triggered by the documents and the documents do not expressly provide for a prepayment premium in such circumstances, no prepayment premium will be payable by the issuer.  Municipal bonds typically feature fixed percentage optional redemption premiums rather than make-whole premiums, but courts may also be inclined to apply to municipal bonds the principle that such early redemption premiums are inapplicable upon an acceleration absent express contract language applying the premium in that context (or, as some courts have suggested, absent evidence that the issuer deliberately defaulted for the purpose of circumventing the call protection provisions.)

Advance refundings may be an appropriate target for the semi-jocund question, “sure it works in practice… but does it work in theory?”  A recent study of approximately 150,000 transactions which concluded that advance refundings “destroy value” is reviewed and critiqued in the following commentary featured in The Bond Buyer


It is not just Green Bay that is feeling super in Wisconsin these days.  The Public Finance Authority, a conduit bond issuer established under Wisconsin law that began operations in 2010, has the statutory authority to provide tax-exempt financing in all 50 states.  To date, the authority has provided financing for four credits.  Two of the PFA’s financings to date have been extraterritorial financings for charter schools in Colorado.  (The Official Statements are on EMMA at  and  A CCRC financing in North Carolina is apparently in the works.  And, as recently reported by The New York Times, the Phoenix Industrial Finance Agency last year provided tax-exempt financing for two private schools in Manhattan and is working on a transaction for Planned Parenthood of America.

There are some technical limits and political safeguards on a state issuer’s ability to export its tax-exempt financing to projects in other states.  The principal one is the public approval requirement (a/k/a the “TEFRA approval”), which typically requires approval of the tax-exempt financing by an elected representative in the jurisdiction in which the financed project is located.  (Another impediment may be the allocation of volume cap for categories of financing that require volume cap, which is why sporadic experiments in extra-territorial financing tend to focus on the 501(c)(3) sector, which is not subject to volume cap restrictions.)

Why would a borrower seek tax-exempt financing from a state other than the state that hosts the project?  The answers vary:

  • A borrower may have projects in various states and find it more efficient to borrow in one fell swoop through a single issuer than to undergo the bond issuance process in multiple states. 
  • There may not be an available issuer in the home state.  For example, as discussed in the New York Times article, New York’s legislation authorizing not-for-profit bond financings by its numerous industrial development agencies lapsed two years ago and has not been re-enacted to date.
  • The out-of-state issuer may offer cheaper issuance fees than the host state issuer.
  • The host state may not approve the project or the financing or may have lengthier or more extensive approval procedures.

As with many things, opinions vary on where cross-border issuance, or particular cross-border financings, fall on the spectrum that ranges from business-friendliness to circumvention of the requirements of the state affected by the financed project.  To be sure, some states have carved out a niche as incorporation havens or credit card issuance havens, and being a bond issuance haven might be thought of as another niche for hard-pressed states to pick up some extra revenue.  There are some differences in this situation, however – tax-exempt financing is a federally subsidized activity, and states are protective of activities within their boundaries.  It remains to be seen how often and in what circumstances super-issuers will be asked to use their superpowers.  Whether federal or state backlash develops may depend on whether such powers are applied sporadically to facilitate projects that are supported by the host state but which for technical reasons can only be financed, or can more readily be financed, by an out-of-state issuer, or whether such cross-border financings extend to projects that are politically or otherwise opposed by the host state.