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vllLESTONESAND
NEW
DIRECTIONS
MILESTONES
Since its inception, the primary incentive
offered bytheAgency has been theTax-
exempt Industrial Development Bond (IDB)
Program. This program has been oneofthe
nation's mostsuccessful; $4 billion in tax-
exempt IDBs have been issuedtoover
2,100 industrial expansion orcommercial
revitalization projects.Throughthe useof
tax-exempt IDBs, MIFA-assisted companies
haveadded an estimated 76,000 new,
industrial sectorjobstothestate'seconomy.
There has been greatdiversity in MIFA's
tax-exempt portfolio-from traditional
industries liketextiles, printingand agricul-
ture, tothe newestjob producers, high-
technologyand computer related
companies. Geographically, MIFA has
helped businessesall acrosstheCommon-
wealth, whilegivingspecial emphasisto
areasofhigher unemployment. And statisti-
cally, MIFA-assisted companies havegrown
fasterthantheaverage, reflectingMIFA's
roleasacatalystforeconomicdevelopment
Since 1978, the Massachusetts Industrial
Finance Agency has been an important andjobcreation.
partnertothe Massachusetts businesscom- Thesweepingtax reform act, however,
changed thewayMassachusetts' businesses
munity. AcrosstheCommonwealth, com-
panies have expanded, renovated, financetheirexpansions;the previously
abundantsupplyoftax-exemptfinancing
modernized, and most importantly, created
employment by utilizinga variety offinanc- for businesses has been all buteliminated.
ingvehicles offered by MlFA. Buttheneedforaffordableexpansion capi-
MIFA has reached a significant milestone tal did notdisappear. Soalthough MIFA's
programsandtechniques have been altered
in that nine-year partnership - $4 billion in
total financings. We have reached this mark considerably, thefundamental goal ofthe
byconsistently offeringexpanding busi- Agency-to stimulate private investment
nessesthe most innovative, affordable and createjobs- has notchanged.
financingopportunities available. Those
opportunities have changed overthe years,
reflecting dramatic changes in the econ-
omy, tax laws, and capital markets. MIFA
has successfully gauged such movements
in the marketplace, enabling usto launch
new programs, in new directions, to con-
tinuefinancing small business expansions
throughoutthe state.
Asan independentagency, MIFA has
alwaysserved asa bridge between the
state's public and privatesectors, allowing
theAgencytooffera unique range offinan-
cial resourcesand services. With a reservoir
ofin-depth knowledgeaboutthestate's
smaller businesscommunity, wecan
respond quicklytotheirchangingcapital
formation needs. Withthestatutoryauthority
to issuetax-exempt bonds, insure loansand
makedirect loans, wecan employthe most
sophisticated techniquesto spur private
investment. Increasingly, MIFA's role has
becomethatofthe state's investment bank
forexpanding businesses- structuring new
financial programsand providingaccessto
newsourcesofcapital.
NEW
DIRECTIONS
Creativeand innovativetechniquesfor
gainingaccesstocapital havealways been
a hallmark ofMIFA. Onceagain, we have
pioneered newapproachestofinancing
small business real estateand
equipmentexpansions. The newdirec-
tion ofMIFA's programswas set bythechang-
ing needsofthestate'sgrowing businesses
aswell as bythe necessityofopening new
avenuesofaccessto broadercapital
markets.
Important recentdevelopments in MIFA's
evolution intoa comprehensivefinancial
agency include:
• The recent introduction ofoneofthe
country'sfirsttaxable IDB programs, a
major newfinancingvehiclefor industrial
and commercial real estateexpansions.
MIFA istheonlyagencythatcan issue
bondsthatareexemptfrom statetaxes, on
behalfofsmaller businesses.
• The identification ofa significant new
sourceofexpansion capital forMassachu-
setts' smaller businesses-the publiccredit
market.
• The issuanceofthecountry's largest
tax-exempt pooled bond issuetofinance
12 companies. In the process, MIFAdevel-
oped a national prototypeforfuturesmall
businesstax-exemptand taxable bond
financings. 1978 1979 1986
Tax-Exempt CommercialArea GuaranteedLoanProgram
• Theforgingofnew relationshipswith
Industrial RevitalizationDistrict ThriftFund
a broaderfinancial community, allowing Development (CARD)Program
SeafoodLoanFund
MIFAto becomeaconduitfor major infu- Bonds
sionsofforeign capital intotheCommon- MortgageInsurance ChildCareFacilitiesFund
wealth. Program TaxableIndustrial
DevelopmentBonds
• ThedevelopmentoftheAgency'sfirst
direct loan programs, each highlytargeted
tospecific industriesorareasofneed.
• Theformation ofstrong partnerships
with a leading investment bank, The First
Boston Corporation, and a major under-
writingfirm, Bear, Stearns&Co., to
gain strategic, financial adviceand market
accessastheAgency seeksthe bestfinan-
cingopportunitiesavailabletothestate's
smaller businesses.
MIFA's $4 billion in bond financings have
played a significant role in theoften-told story
oftheCommonwealth'seconomic resur-
gence, and have earned MIFA national rec-
ognition asa leaderin financing innovation
forgrowingbusinesses. Now, with the
Agency's new programsand initiatives
(described in detail in thefollowingpages),
MIFAcontinuestoserveasa catalystfor
private business investmentand economic
development.
TAX EXEMPT INDUSTRIAL
DEVELOPMENT BONDS
TAXABLE INDUSTRIAL
Targetinga scarce resource
DEVELOPMENT BONDS
MlFA'sTax-exempt Industrial Develop-
ment Bond (IDB) Program has been a major
sourceofcapital forthestate's small busi- The nextgeneration ofaffordable
nesscommunity. DBsarevery much like
I financing programs
conventional financings, excepttheyare
specifically intendedtospuradditional The reduction in theTax-exempt IDB
investment injob-creating industrial real Program has not reduced thedemand for
estateexpansions. MIFA hasthestatutory affordablefinancingsolutionsforgrowing
authorityto makethe intereston the bond businesses. Tocontinueto meetthat
tax-exempt, and thesesavingsare passed demand, MIFA has introduced the next
on tothe borrower in theform oflower generation ofIDBs-theTaxable IDB.
interest rates. Taxable IDBsare used tofinance indus-
In virtuallyeverycommunity inthe state, trial orcommercial expansion projects, but
expansion projects have been made pos- do not relyon afederaltax-exemption to
sible oraccelerated through the useoftax- provide interestcostsavingsto borrowers.
exempt bonds. Instead, takingadvantageoftheAgency's
The newfederal tax code, however, had uniqueabilityto issue bondsexemptfrom
a dramatic impactonthetax-exempt IDB statetaxes, and usingcreditenhancement
program fortwo reasons: techniques, taxable bondscreatecostsav-
First, the lawdrastically reduced thevol- ingsforawiderarrayofexpansion projects.
umeoftax-exempt bonds issued in the There is no limittothe bond amount, so
state. In anticipation ofthischange, MIFA taxable IDBsare ideal for majorindustrial
instituted a strictsetofeligibilitycriteriato and commercial real estate projects, partic-
insurethatthisveryscarce resource istar- ularlyforcompaniesthat havegrown
geted to projectsthatcreatethe mostjobs beyond thethreshold allowed bytax-
and are located in areasofhighest need. exempt IDBs. Through the program, several
Second, thetax lawchanged the market smaller projectscan be pooled intoone
forthese bonds. Historically, commercial larger bond, creating lowerissuancecosts
banks have purchased 85% ofMIFA's and legal feesfor borrowers. Andtaxable
bonds, butthe newtax lawvirtuallyelimi- IDBsare much simplerand fasterto issue,
natesthe incentivefor banksto purchase astheyare notsubjecttocomplex IRS regu-
tax-exempt IDBs. Asa result, companies lationsasaretax-exempt IDBs.
seekingfinancingwith MIFA bonds need MIFA'sfirsttwotaxable IDBs illustratethe
different purchasersand the primary pur- greatflexibilityand diverseapplicationsofthe
chaserofthese bondswill bethe public new program. MIFA'sfirsttaxable IDB -also
credit market. thefirstofits kind in thecountry-wasa
Largercompanies have long raised capital pooled issue, totallingjust under $8 million,
in the public market, where longerterms involvingthree projects-one industrial
and fixed ratesareattainable. But smaller, renovation and two manufacturingexpan-
unrated companies- including mostof sions. MIFA madethefinancingwork by
MIFA'sclients-are notableto participate in arranginga letterofcreditfrom locally-based
the public credit marketon theirown. So Essexbank, facilitatingthe saleofthetaxable
MIFA hascreated thefinancial structure- IDB in the public market. Thefinancial struc-
involving investment banks, underwriters, turecreated byMIFA, coupled withthe
and often acommercial bankto provide exemption from the statetaxes, enabled these
a letterofcredit-to provide smaller,growing companiesto obtain expansion capital at
companiesaccesstotheadvantageous rates lowerthan theycould havefound con-
financingopportunitiesavailable in the public ventionally.
credit market. Thesecond taxable IDB wasa single bond
In short, then, tax-exempt IDBsfor issueofalmost $25 million to an advanced
smaller businessesareavailable, butonly medical instrumentcompanythat needed
on a very limited and targeted basis, and capital to buyequipment, re-structuredebt,
MIFA has structured different mechanisms and acquire real estateforfutureexpansion.
to marketthe bonds. Moreover, we have With a letterofcreditfrom London-based,
developed a broaderarrayoffinancing triple-A rated Barclays Bank, the bond was
alternativesto helpexpandingcompanies also sold publiclyatadvantageousterms. The
that may haveoutgrown thetraditional IDB sheersizeofthistransaction would have
program orthat haveveryspecificfinancing made it ineligibleforatax-exempt IDB, but
needs. through theTaxable IDB Program, MIFA is
abletofinancesuch large projects.
Flexibleand simple, theTaxable IDB Pro-
gram isdestined to bethe most significant
economic developmentfinancing program of
thedecade.
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GUARANTEED LOAN PROGRAM
Thewindowtocapital markets
The keytoofferingsmaller, growing busi-
nessesaffordable IDB financing isaccessto
the public credit market. Just how hasMIFA
madethataccess possible? Bycreatinga
financial structurethatenhancesthecreditof
unrated companies, thusfacilitatingthesale
ofthe bonds in the public market. Thisstruc-
ture, calledtheGuaranteed Loan Program In December 1986, MIFA issued itsfirst
(CLP), allowssmallerMassachusetts business pooled tax-exempt bond issue underthe
togetthesameadvantageousfinancingterms Rabobank letterofcredit. The $21.4 million
usuallyavailableonlytothetopechelon of pool, comprised of 12 individual bonds, was
Fortune 500companies. the largest pooled issueofits kind in thecoun-
With federal tax reform eliminatingthe try. Becauseofthestructureofthetransaction,
incentivesforcommercial banksto purchase each ofthese 12 companies received financ-
bonds, theCLPisthevehicleMIFAwill useto ingatan average interest rate of6.5%, fixed
markettax-exempt IDBs, aswell asthe new for 10years-termsthatwould have been
taxable bonds. TheGLP pools several IDBs impossibleforsmallercompaniestofind
intoone largerissueforsale in the public from conventional sources.
credit market. With each separate letterofcreditfrom
Theconceptof"pooling" iscommon in a local orforeign bank, the specific termswill
otherfinancial instruments, such as pooling differ. Butthe Rabobankagreementand the
a varietyofstocks intoone mutual fund. largest pooled bond issue represented a
Thesizeofthefund, ofcourse, gives ita national prototypeforfuturetax-exemptand
largerpresence in the market, and allows taxable bond financingsforsmaller busi-
investorsto spread outtheirrisk.The idea nesses. Moreover, thisoneagreement has
ofpoolingsmaller individual bonds into sparked interestfrom a numberofother
one larger bond issue, a relatively newcon- highly rated foreign banks, who seeMIFAas
cept, reducesissuancecostsforeachindivid- an innovativeand aggressive partnertothe
ualborrowerinthepool,andalsomakes Commonwealth's businesscommunity.
thebond moreattractiveto investors.
Through theGLP, MIFA alsoarrangesfor
creditenhancement on the bondsto lever-
MORTGAGE INSURANCE PROGRAM
agethefinancial strength ofa majorfinan-
cial institution on behalfofsmaller, unrated
Increasing borrowing limits
companies.
That iswhyMIFA has undertaken an MIFA'sabilitytoactasan insurancecom-
aggressivecampaign toarrangefor letters pany isanotherimportantfactor in servingas
ofcreditfrom local, national and foreign acatalystfor private investment.
banks. Withthe backingofa highly rated MIFAdeveloped theMortgage Insurance
financial institution, MIFAcan providethe Program (MIP) forcompanieswhose need
key link between borrowersand affordable forexpansion capital exceedstheircredit
expansion capital. limit. MIPisa unique loan guaranteethat
In thefall of 1986, MIFAannounced enables lendersto increase loan amounts
one such arrangementwith Rabobank for businessexpansions; with MIFA insuring
Nederland. a portion ofthe loan, businessescan bor-
Rabobank, a $60 billion, triple-A rated row moreofthe project'scost. Atthe same
(Standard & Poor'sand Moody's) international time, lenderscan increase loan amounts
bank, agreed to provideMIFAa $50 million without increasingtheir risk. Proceedsof
letterofcreditto backtax-exemptortaxable the insured loan can be used toacquire
bonds issued bytheAgency. Rabobank's land, toconstructor renovatefacilities, or
financial strength putatriple-A ratingon the to purchaseequipment. Aswith all of
bonds, thusallowingthose bondsto be sold MIFA's programs, the project mustcreate
asatriple-A security in the public market. or retain employment.
Thisagreement marked thefirsttime in the Mortgage Insurance has been used exten-
United Statesthataforeign bank madesuch a sively in conjunction with individual tax-
majorcommitmenttoa public agencythat exempt IDBsaswell aswith pooled bond
exclusivelyservessmaller businesses. offerings. Since itcan also be used with tax-
able IDBsand conventional mortgage loans,
many morecommercial banksare beginning
to utilizethe program to assisttheirgrowth-
oriented customers.
SEAFOOD LOAN FUND
TheMassachusettsseafood industry-a
substantial industrygenerating $1 billion
DIRECT LOAN PROGRAMS
annually in economicactivityand providing
employmentforsome 12,000 people- has
been battered in recentyears byeconomic
Targetingspecific needs forces beyond itscontrol. Seafood processors
in particular, havefound itdifficulttoobtain
In the process ofevaluatingthe changing sufficientfinancingat reasonable ratesto mod-
capital requirements ofthe Common-
ernizetheirplantsand equipmentor invest in
wealth's businesses, MIFA identified several newtechnology.
specific areas ofneed. As a result, the THRIFT FUND Respondingtothistroublingsituation,
Agency is nowoffering itsfirst highlytar- theMassachusetts State Legislature
geted direct loan programs, in some cases requested thatMIFAstudythefinancial
capitalized out ofMIFA's own reserves. needsofthe industryand lookfora solu-
These initiatives have allowed MIFAto MIFA isalsodesignated to originateand tion. MIFAconvened a Seafood Advisory
expand the alternativesforaffordablefinan- servicedirect loansthrough theThrift Fund Council, consistingof7 members
cial solutions. for Economic Development, a $100 million appointed fortheirspecial expertise in pro-
pool ofcapital funded bythestate's276thrift cessing, banking, insuranceand finance.
institutions. This non-revolvingfund directs Followinga yearofstudy, theCouncil rec-
loanstoward areasofthestate still experienc- ommendedthecreation ofa revolving, low
CHILD CARE FACILITIES LOAN FUND ing higherthan average unemployment rates. cost, direct loan fund structuredtostimulate
MIFA handlesall Thrift Fund loan requests investment in modern equipmentand new
over $250,000for plantexpansionsand technologyfortheseafood processingindus-
equipmentpurchases. try. MIFA's Board ofDirectors notonly imme-
The need to supporttheworkforce by Oneofthe advantagesoftheThrift Fund diatelyadoptedthe recommendations, but,
increasingtheavailabilityand affordabilityof program is itsflexibility. The program can be in theabsenceofa stateappropriation, pro-
child care has becomevital tothestate's usedtofinanceavarietyofprojectssuch as vided $1.5 million in seed capital outof
economy. Getting people intothework- newconstruction, expansion, renovation, or MIFA'sown reserves.
forceand keepingthem there isas import- equipment purchase. TheSeafood Loan Fund grantsdirect loans,
antas providingthe bricksand mortarto Thedirect loansMIFA hasoriginated out upto $200,000, tocompanies involved in
put up new buildings. oftheThrift Fund have helped companies snipping, freezing, storing, packaging, distri-
That iswhyMIFAdeveloped theChild thatcould not havegotten conventional butingand marketingofseafood products.
Care Facilities Loan Fund. Capitalized by financingfortheir projects. More impor- In thefirstyearofthe Fund'sexistence,
MIFA's reservesat$750,000- making itthe tantly, the loans leveraged further private MIFA has madedirect loanstotaling nearly
largestsuch Child Care Fund in thecountry investment in thecompanies. Afarmer in $1 milliontocompanies in almostevery
-the program isdesignedtoencourage Berkley, forexample, wasabletofinance major port in theCommonwealth. Companies
developersand corporationstoconstruct theconstruction offour newgreenhouses in Gloucester, forexample, used MIFA's
on-sitechild carefacilitiesfortheiremploy- togrow hydroponictomatoes-atechnol- financingto purchasea newfreezerand a
ees.The Fund actsasa stimulusforthe ogy newtothis region. A solid wastedis- new ice machine. AMarshfield lobster
construction ofchild carecenters, and is posal company in Roxburyexpanded its wholesalerwasableto increase productivity
targeted tocompanies, groupsofcompa- operation and added employeesafter with modernized holdingtanks; a Boston
nies (such as industrial parks), and non-profit receivingaThrift Fund loan. And oneMIFA company used a Seafood Fund loan to
organizations. Thrift Fund loan enabled a groupofemploy- purchase newcomputerequipmentto
The Fund made itsdebutwith a $30,000 eestoacquiretheassetsofafabriccompany maketheirfresh fish distribution system
loan toa manufacturerofmen'sclothingin thatwasgoingto beeliminated, thussaving moreefficient. And in an unusual, butcriti-
Lawrence, to helpconstructafacilityfor 250jobs in Hatfield, Lawrence, and other cal, application, the Fund has helped acon-
fortychildren. The project received wide- communities north ofBoston. sortium of30 processors participate in a
spreadfinancialsupportfromthestaff, cost-efficientoperation in New Bedfordto
unions,and localofficials,aswellasfrom disposeoffish by-products.
thecompany. Inanotherinstance,anon- Byaddressinga particular need ofthe
profitjobtrainingcenterinWorcesteruseda troubled seafood processingsector, MIFA is
$25,000lowinterestloanfromMIFAto playinga crucial role in creating longterm
expandtheplaygroundareaoftheiron-site improvements in thequality, efficiency, and
childcareoperation. Inthesecases,MIFA's competitivenessofan industrythat isan inte-
directloansactedasacatalystforfurther gral partofthestate'shistoryandculture.
investment, makingthisprogramamodelof
publicand privatesectorcooperation.
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MASSACHUSETTS INDUSTRIAL
FINANCE AGENCY
A unique partnertoMassachusetts business BOARD OF DIRECTORS
When MIFAwasestablished in 1978, the
basic purposewastocreatively usetax-
exempt Industrial Development Bondsto CHAIRMAN
stimulate private investmentand createjobs Robert L. Beal
in the hard-hit manufacturingand industrial ExecutiveVice President
sectorsoftheeconomy. The Beal Companies, Inc.
In theearly 1980's, atimeofhistorically VICE-CHAIRMAN
high interest ratesand recession, MIFA
David Squire
played a key role in providing incentives
Trustee and FormerVice President
for industrytocontinueto build.
Brandeis University
And today, faced with radical changes in
TREASURER
thetax laws, theeconomy, and thestructure
ofcapital markets, MIFA isagain strategically Ronald A. Homer
positioned to offera broaderspectrum President and Chief Executive Officer
offinancial programsandaccesstothemost Boston Bank ofCommerce
attractivesourcesofexpansioncapital. Edward McCann
P.
Throughouttheseevolutions, MIFA has FormerArea Director
greatly benefited from strongsupportofthe CommunicationsWorkers ofAmerica
Governor, the Massachusetts State Legisla-
ture, theCongressional Delegation, and a Janet M. Pavliska
broad coalition ofbusinessand community President & Chief ExecutiveOfficer
leaders. These unique partnerships, coupled Bank Five for Savings
with MIFA's innovations in productdevelop- Joseph D. LoBello
ment, haveallowed ustofirmlyestablish the Executive Vice President
courseforfinancingvehiclesthatwill encour- Bank of New England-West
agegrowth, increaseemployment, and
FrankT Keefe
enhance productivity.
Secretary
Executive Office ofAdministration
and Finance
Joseph D. Alviani
Secretary
Executive Office ofEconomic Affairs
Paul Tortolani
Commissioner
Department ofCommerce & Development
EXECUTIVE DIRECTOR
Brian T Carty
FINANCIALADVISOR
The First Boston Corporation
UNDERWRITER
Bear, Stearns&Co. Inc.
Massachusetts Industrial FinanceAgency
400 Atlantic Avenue
MA
Boston, 02210
(617) 451-2477 or 1-800-MIFACTS
FAX: (617) 451-3429
