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The market for tax-exempt IDBs is essentially confined to taxpayers who stand to gain a tax advantage by making investments which will earn interest income not subject to federal income tax. To gain the maximum interest rate advantage, the borrower must usually structure an IDB financing for sale into the national public bond market. In practical terms this will require that the borrower be an investment grade rated corporation or obtain a third party guarantee of debt sufficient to gain such a rating. If a borrower is not a nationally known corporation with its own credit rating, the borrower will usually need to seek a Letter of Credit guarantee from a rated financial institution or financial guarantee insurance through an organization such as Ambac Assurance Corporation which carries triple-A claims-paying ability ratings from Moody’s Investors Service, Inc., Standard & Poor’s Ratings Group, and Fitch Investors Service, Inc. Bonds issued with such guarantees are usually structured as fixed rate insured bonds or with variable interest rates. The advantages and costs attendant to each structure should be explored by the borrower and compared with the interest savings gained over the life of the bonds issue.
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