Actionable Ideas for Companies and Sponsors
Issuers Increasingly Crossing Over Between Municipal and Taxable Markets to Lower Their Cost of Capital
We continue to see increasing crossover by both municipal clients into taxable executions, as well as by private/corporate clients finding ways to benefit from low cost tax-exempt borrowing.
Our municipal housing finance clients have successfully married their tax-exempt financing needs with CMBS market structures to achieve further reductions in cost of capital. By placing their tax-exempt debt with CMBS buyers, these municipal issuers have lowered their cost of capital by 30-100 basis points, while at the same time providing investors with above market returns, when adjusted for the benefit of federal tax-exemption.
Separately, corporate and private entities are lowering their cost of capital by crossing over to tax-exempt ownership structures for certain public benefit assets, including student housing, public facilities, utilities, healthcare centers, among others. By working closely with non-profits and/or governmental partners as owners, corporates can finance and monetize assets on a tax-exempt basis, with cost of capital savings up to 100 basis points. Additionally, such ownership structures can reduce or eliminate real estate taxes, further increasing enterprise values. Finally, with more accommodative Qualified Management Contract rules in place, these partnerships allow private entities to generate ongoing income and returns from these non-profit/governmental partnerships.