What is a 144a Bond Fund and How Can It Finance Your Next Project?
Background and establishment of Rule 144a
Under the Securities Act of 1933 aka “The Securities Act”, Rule 144a was created originally in 1990 by the SEC (Securities Exchange Commission) to encourage foreign companies to sell securities in the US Capital Markets. Although it was originally established for this purpose, it has become a very popular way to fund major projects in many industries while reducing the regulatory restrictions to trade the securities backing these projects between the institutions that are qualified to trade (buy and sell) them.
In other words, Rule 144a helped reduce restrictive regulations that were designed to protect average investing citizens so that large QIBs (Qualified Institutional Buyers) could more easily underwrite and trade securities (bonds in this case) among / between themselves privately. QIBs are large institutional investors that have a minimum of $100 million in assets available for investing, while the Rule 144a allows these QIBs to trade shares in these securities starting at a minimum of $500,000 units without many regulative restrictions.
Essentially, this makes the debt or investment vehicles created under Rule 144a much more liquid, which in turn frees up the regulatory restrictions in the capital pipeline for bond issuers and QIBs, allowing them to more easily fund large Real Estate (RE) and non-Real Estate Projects, more frequently.
What Kinds of Projects can be Funded with the 144a Bond Fund?
The 144a Bond Fund is used to fund projects between $10 million and $500 million USD in the following areas (but not limited to):
- Stabilized Real Estate
- Rehabilitation (RE)
- Construction / RE Development
- Material Handling and Warehousing
- Logistics and Cargo
- Agricultural projects
- Energy projects – Solar, Wind etc.
- Mining
- Oil, Gas and other Energy projects
- Communications / Technology / Data Technology
- Procurement
- Other Non-Real Estate such as technology, pharmaceuticals, large business acquisition and/or expansion, including Dental, Ophthalmology, Veterinary, and all kinds of Surgical Practices
Projects must be sound investment projects with a realistic exit strategy and the Principals must have proven experience in the specific project / industry type.
What are the Benefits of using a 144a Bond Fund to finance a project?
- 100% LTV (Loan to Value)
- No Personal Credit Checks or Personal Guarantee
- No Personal Asset Verification
- No Equity Loss in your Business
- Short Funding Process- usually under 90 days
- Flexible Terms for Repayment
- Underwriting Fees are Low
The typical term for this funding option is
- Up to 30 years with balloon payment (which is negotiable)
- An interest rate between 5 and 7%, but higher for shorter terms under 5 years
- Average points are between 5 and 8
What can you expect during the Bond Funding Process?
- Preliminary application package including POF for fee amount and Bond Questionnaire
- Several Conference Calls
- Bond Company Analysis and Pre-underwriting process
Once the Bond Fund Company issues a positive response to proceed. . .
- The Bond Company is engaged and the underwriting fee is due and paid
- The Bond is Created
- The Funding is supplied for the project
To begin the process of funding your project, submit the Capital Request Form and a 5th Avenue Partner will contact you shortly.
