LIHTC Bonds: A Conduit Issuer’s Cheat Sheet

Practical Guide

Bond Counsel Basics

What does Bond Counsel do?
Bond Counsel issues a legal opinion (a “bond opinion” or “final opinion”) confirming:

    1. Interest on the bonds is tax-exempt, and
    2. The bonds are valid under state law

That opinion informs Bond Counsel’s analysis throughout the transaction.

Who is Bond Counsel’s client?
Bond Counsel’s client is the bond issuer. Bond Counsel also works closely with the developer/borrower, capital providers, and counsel to help structure the financing and support a smooth closing.

What does the bond opinion have to do with LIHTC?
For 4% LIHTC transactions, a project must meet the applicable bond financing threshold (often referred to as the “50% test” or “25% test,” depending on when the bonds are issued and the project is placed in service). Bond Counsel’s work helps confirm that the bond financing is properly structured and proceeds are used in a way that supports the project’s eligibility for 4% credits.

      • Issuer Takeaway: Bond Counsel’s tax analysis and closing documentation are closely tied to the bond financing required for a project to qualify for 4% LIHTC.

What’s the “95% test,” and how is it different from the “25% test”?

The 25% test is the LIHTC threshold tied to how much of the project is financed with tax-exempt bonds (subject to rules and exceptions). The 95% test is a separate tax-exempt bond rule that focuses on how bond proceeds are spent (i.e., that most proceeds go toward qualified project costs).

      • Issuer Takeaway: 25% test = LIHTC eligibility. 95% test = bond proceeds compliance.

Quick Reference: Key Terms

Bond-Related Approvals:

Inducement Resolution
Issuer declaration of intent to issue tax-exempt bonds that helps preserve reimbursement and timing flexibility.

TEFRA Approval
Public approval process (hearing + approval) required for certain tax-exempt bonds.

Authorizing Resolution
Issuer action approving the bond financing and authorizing related steps toward issuance.

Key Deal Documents:

Bond Regulatory Agreement
Agreement that sets federal tax and state law affordability and program compliance requirements for the project for the applicable compliance period (including income/rent restrictions and related covenants).

Indenture
Agreement between the issuer and the bond trustee that governs the bonds and key mechanics (including flow of funds, investments, and bondholder protections). In some private placements, a “Funding Loan Agreement” is used instead.

Loan Agreement (or Financing Agreement)
Agreement between the issuer and borrower describing the loan of bond proceeds and the borrower’s repayment and project-related obligations. In some private placements, a “Borrower Loan Agreement” or “Project Loan Agreement” is used instead.

Tax Certificate and Agreement
Closing document in which the issuer and borrower certify facts and make covenants supporting the tax-exempt status of the bonds (including how proceeds will be used and invested).

Bond Purchase Agreement (or Bond Purchase Contract)
Agreement among the issuer, the underwriter, and the borrower that sets pricing and key terms for the bond sale. Typically used in publicly offered transactions; direct bank placements generally do not include a bond purchase agreement, with terms instead documented in the bond documents and related financing agreements.

Official Statement
Disclosure document provided to investors in a public offering that describes the bonds, the project/financing, key risks, and other information relevant to the bonds.

Structuring Concepts:

Volume Cap
Federal limit on tax-exempt private activity bonds issued in a state each year; typically awarded on a project basis. Example: If a LIHTC project needs $50M of tax-exempt bonds, it generally needs a $50M volume cap allocation.

Recycled Volume Cap
Permits certain previously used volume cap to be reused for another project. Bonds issued using recycled volume cap (“recycled bonds”) generally do not count toward the LIHTC 25% test.

Arbitrage
Extra investment earnings on bond proceeds (or related funds) above the bond yield. Tax rules limit how much can be kept, and excess earnings may need to be rebated.

Issuer Checklist

    • Confirm the approval path early (meeting date(s) and agenda timing).
    • Calendar TEFRA and public notice timing (posting/publication requirements, hearing date, and approval action).
    • Align on use of proceeds + project scope (helps confirm tax-exempt vs. taxable structuring and bond term considerations).
    • Confirm transaction team + document set (Bond Counsel, issuer counsel if applicable, underwriter/purchaser, trustee/fiscal agent, borrower counsel).
    • Plan signatories and closing logistics early (authorized officers, signature blocks, and “who signs what”).
    • Clarify post-closing compliance handoff (who tracks regulatory compliance and any post-issuance tax/recordkeeping items).
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