Chapter 22 - § 22.6 • REFINANCINGS

• Jurisdiction: Colorado

§ 22.6 • REFINANCINGS

§ 22.6.1—Refinancing Taxable Debt

Qualified § 501(c)(3) bonds may be issued in order to refinance debt of the § 501(c)(3) organization borrower that pays taxable interest. Treas. Reg. § 1.150-1(d); IRS Tech. Adv. Mem. 9831003 (April 7, 1998). The refinancing is treated as a refunding of the taxable loan and is analyzed accordingly. Id.; Cf. Treas. Reg. § 1.150-2(g)(1). Refinancing a prior taxable loan with proceeds of an issue of qualified § 501(c)(3) bonds is often done where the § 501(c)(3) organization borrower undertook the construction or improvement of a new capital project using short-term construction financing and seeks to put permanent, long-term financing in place for the project.

§ 22.6.2—Refinancing Tax-Exempt Debt

Refinancings of tax-exempt qualified § 501(c)(3) bonds are permitted for certain purposes such as to achieve debt service savings or to restructure debt service payments or other security to better fit the § 501(c)(3) organization borrower's projected revenues and business needs. See Treas. Reg. § 1.150-1(d)(1) ("Refunding issue means an issue of obligations the proceeds of which are used to pay principal, interest, or redemption price on another issue."); Cf. I.R.C. § 149(d)(3)(B)(i) (requiring an issuer to redeem advance refunded bonds on the earliest date on which such bond may be redeemed if the issuer may realize a present value debt service savings).

Refinancings historically were divided into two types: (1) advance refundings and (2) current refundings. I.R.C. § 149(d)(5) ("a bond shall be treated as issued to advance refund another bond if it is issued more than 90 days before the redemption of the refunded bond"); Treas. Reg. § 1.150-1(d)(3) (defining the term "current refunding issue"); Treas. Reg. § 1.150-1(d)(4) (defining the term "advance refunding issue"). Advance refundings result when any portion of the refunded debt remains outstanding for a period of longer than 90 days after the date of issuance of the refunding bonds. I.R.C. § 149(d)(5) Subsequent to December 31, 2017, tax-exempt advance refundings are prohibited. I.R.C. § 149(d)(1). Current refundings result when the refunded debt is completely paid off within the 90-day period following the date of issuance of the refunding bonds. Treas. Reg. § 1.150-1(d)(3).

All private activity bond restrictions and arbitrage limitations applicable to a new money obligation remain applicable to any refunding obligation and any unspent proceeds of the...