Archer Daniels Seeks Iowa Disaster Bonds

CHICAGO — Decatur, Ill.-based Archer Daniels Midland Co., the world’s largest grain processor, has requested an allocation of up to $200 million of Midwestern disaster-area revenue bonds through the Iowa Finance Authority for improvements at its Iowa processing facilities.

The board accepted an initial application at its meeting last week so the company must return with a more detailed description of its borrowing plans for approval at a later date, said Lori Beary, community development director at the IFA, which would serve as the conduit issuer.

The company would use proceeds to finance projects at its processing plants in Cedar Rapids, Clinton and Des Moines. ADM operates more than 270 plants worldwide where cereal grains and oilseeds are processed into products used in food, beverage, nutraceutical, industrial, and animal feed markets.

Though the sizing is not yet set, the Archer Daniels deal is the largest since the Iowa authority issued $75 million of disaster bonds in 2009 and another $75 million earlier this year for Minnesota-based Cargill Inc. under the federal program authorized by Congress in 2008.

Thornton Farish Inc., Bank of America Merrill Lynch and Wachovia Securities were underwriters on the first sale and Thornton Farish and US Bancorp were underwriters on the second transaction.

The $14.6 billion disaster program permits the use of tax-exempt bonds for qualified privately owned projects aimed at generating jobs and economic activity in certain Midwestern counties that saw severe weather-related damage in 2008. The bonds must be sold by the end of 2012.

A total of 78 of Iowa’s 99 counties were designated disaster areas. Iowa received a total allocation of $2.6 billion and has doled out between $500 million and $600 million of the private-activity revenue bonds to finance 40 qualified projects ranging from office buildings to hotels to processing plants.

Most of the deals have come in increments between $10 million and $20 million. Interest in the borrowing tool has risen. “It took a while for some companies that had never had the opportunity to use tax-exempt bonding to learn it was available, and then, during the recession, funding expansion and growth was not on many businesses’ radar,” Beary said.

Both Archer Daniels and Cargill have outstanding industrial development or pollution control revenue bonds issued through various agencies.

The Iowa Finance Authority manages the state’s disaster allocation under an executive order. It has served as issuer on about half of the allocation used so far and doled out the other half to local governments, Beary said. The agency has promoted the financing tool with local and state economic development officials. Dorsey & Whitney LLP is issuer’s counsel to the Iowa agency on the program.

Cargill used the proceeds of its Iowa sales to finance projects in Ottumwa, Cedar Rapids, Eddyville, Fort Dodge, Bloomfield and Mason City. Cargill is also seeking to sell up to $18.7 million of bonds under the program through the Illinois Finance Authority for projects at its three facilities in that state. The nearly 150-year-old, privately held processor and marketer of agricultural and food products employs 130,000 people in 63 countries.

When the program was first approved, some bond lawyers said it was limited to firms that suffered damage from the flooding and storms that hit the Midwest earlier in 2008. They had questions as to what constituted a loss and, in a replacement situation, whether the new business needed to be the same as the old one.

The Internal Revenue Service released guidance in late 2009 that gave a governor or a designee authorized by the governor the freedom to designate which projects or replacement businesses to finance with proceeds, as long as those decisions were being made in good faith.

“We have taken a broad view” in cases where new projects replace lost development even if the aid is for another company, Beary said.

In the Midwest, states can issue up to $1,000 of bonds per person living in a federally declared disaster areas. Counties in Arkansas, Indiana, Illinois, Iowa, Missouri, Nebraska and Wisconsin are eligible.

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