The Internal Revenue Service has initiated an examination into four series of revenue bonds totaling nearly $50 million that were issued in 2002 by the Daly City, Calif., Housing Development Finance Agency to help a nonprofit borrower purchase the lease to a mobile home park.
The audits were disclosed by the conduit issuer in a material event notice it sent to the nationally recognized municipal securities information repositories.
The California agency issued the bonds as a conduit for the LINC Franciscan LP, a nonprofit group.
Donald McVey, the director of finance for Daly City, said the IRS told the city that the audit "was simply a random selection."
The bonds were issued for LINC to ensure that the Franciscan Mobile Home Park, which provides land for 501 mobile homes, could remain in Daly City as an option for low- and moderate-income families after its lease, which was held by a private company, expired in 2002.
"The mobile home park itself has existed in Daly City for quite a long time, and the lease periods on the underlying land were expiring, so the residents were concerned," McVey said. "The city acted as a conduit financing agency in order to allow a nonprofit group ... to purchase the property."
The bonds are Series A through D. The largest portion, Series A, totaled $34.5 million, and accounted for most of the expenses tied to the acquisition. The remaining Series B, C, and D totaled about $15 million, and covered related expenses.
McVey said the deal was a straightforward conduit borrowing for the city, and that there were no exotic financing techniques employed that could attract IRS attention. The issuance served a "clear public purpose" in ensuring the mobile home park could continue to provide affordable living to some Daly City residents, he said. He said the agency was cooperating fully with the examination.
Kutak Rock LLP was bond counsel on the deal, and U.S. Bancorp Piper Jaffray, now Piper Jaffray & Co. was lead manager on the transaction.