First-ever MUD Forward Funding Capital Appreciation Bond Completes Sale in Texas
New financial tool becomes available to Texas developers, providing access to future reimbursements of MUD bond proceeds for immediate use.
Austin, Texas (Nov. 15, 2023) – Texas developer Randolph Texas, recently successfully completed the sale of its MUD (Municipal Utility District) Forward Funding Capital Appreciation Bond (Forward Funding Bond). This is the first time that this newly created non-recourse, tax-exempt bond has been sold in Texas, providing the developer with a reimbursement of a portion of the $42.4M in MUD eligible infrastructure costs that had been constructed at the time of the Forward Funding Bond issue.
Forward Funding Bonds are a new finance tool that provides developers in Texas who have established MUDs (or similar special districts) and have constructed MUD eligible public improvements, access to the future MUD bond reimbursement funds now, at a low tax-exempt interest rate. The interest rate for this Forward Funding Bond was 7.50 percent. The bond structure was developed by Carter Froelich, Managing Principal and CPA with Launch Development Finance Advisors, affiliated with Land Advisors Organization along with other professionals in the underwriting and legal communities.
“The sale of this first Forward Funding Bond proves that this is a viable concept and provides a new financial tool to Texas developers that offers the option of advancing future MUD bond proceeds into the present at a much better rate than traditional methods,” said Froelich. “Developers can now access capital from the public markets, retire debt or repatriate capital through these Forward Funding Bonds. It’s an exciting development for our clients and developers in Texas.”
Previously, selling future MUD reimbursements were only available through private investors and cost to the developer of approximately 12-15 percent. The new tool allows developers to sell their future MUD reimbursement via a conduit issuer, allowing for the Forward Funding Bond to be sold earlier in the development process in anticipation of future MUD issuances. The borrower in the case of this first Forward Funding Bond is North San Gabriel MUD No. 1, located in Williamson County, Texas.
A MUD is a special taxing district that serves as an independent, limited government with the purpose of providing developers with a way to finance the construction of public infrastructure (water, sewer, drainage, roads, etc.) for communities they are building. MUDs are commonly used in Texas. A Capital Appreciation Bond is a security in which the interest on principal accrues and compounds until maturity, at which time the investor receives a single payment representing the face value of the bond and all accrued interest. In the case of the Forward Funding Bond, when the MUD issues its bonds, typically on an annual basis, the MUD proceeds are utilized to pay down the principal and accrued interest on the Forward Funding Bond. As such, the Forward Funding Bond is anticipated to be fully retired prior to maturity.
Launch is a transaction based real estate consulting firm that specializes in the financing of public infrastructure that serves development projects across the U.S. We are the one stop shop to take the financing of public infrastructure from the planning stage until the receipt of the last reimbursement request. The firm’s purpose is to assist the private sector with financing public improvements, reducing improvement costs and mitigating development risks all with the goal of enhancing project profitability.