The New York City Capital Resource Corp.'s new program to take advantage of changes governing the issuance of small manufacturing bonds under the federal stimulus package took a crucial step toward rolling out its first deals yesterday.

The CRC board approved a reduced fee schedule for borrowers under its new industrial and manufacturing bonded loan enhancement program, or Nimble, which the city announced earlier this month.

"One of the things that we're finding when we talk to businesses across the city is that access to capital is obviously extremely constrained in this environment and when capital is available, it's very expensive," said CRC chairman Seth Pinsky. "What we're looking to do here is to help especially small businesses tap into the credit markets and to do so at a much lower rate, which is what the tax exemption will grant."

The bond program relies on the expanded definition of manufacturing under the American Recovery and Reinvestment Act, which allows state and local governments to issue tax-exempt small-issue manufacturing bonds for facilities that create intangible property such as patents, copyrights, formulas, processes, designs, computer software, and certain intellectual property. The act also removed a limit on how much of the bond proceeds could be used for ancillary assets as opposed to core manufacturing assets. The new provisions expire at the end of 2010.

An official from the New York City Economic Development Corp., which runs the CRC, said that 25 companies and individuals have contacted them since the program was first announced and they expect it to be attractive to new media companies, biotech, and pharmaceutical firms. Borrowers can use the program to finance projects costing $1 million to $10 million.

To make the program affordable, the CRC yesterday reduced its annual fee for complying with state and local reporting requirements to $500 from $850. It also reduced its financing fee to 0.75% for the transaction from the current fee structure, which is 1% on the first $5 million plus an additional 0.5% for larger amounts. Borrowers would also utilize template bond documents which cuts down on bond counsel fees.

Companies that want to borrow under the program would get a bank loan, most likely from a commercial bank. The bank would execute loan documents with the borrower while simultaneously assigning the future repayment of that loan to the CRC.

In exchange, the CRC would then privately place tax-exempt bonds to the bank. The bank agrees to service the loan on behalf of the issuer and disburses the loan funds to the borrower. As the bank collects loan repayments from the borrower, it applies them to the principal and interest owed on the bonds.

The federal stimulus also added another incentive to banks, adding them to the de minimis provision so that they can deduct 80% of the cost of buying and carrying tax-exempt bonds so long as their tax-exempt holdings are less than 2% of their assets.

The EDC expects that borrowers will be able to save at least 1% of borrowing costs by using Nimble bonds instead of a taxable loan, according to its Web site.

While Pinsky said the program was "a bit of an experiment," it is similar to existing off-the-shelf small manufacturing programs like Oregon's Express Bond program, which has been doing similarly structured transactions since 2005.

"The difference here is that [New York City] is marketing this to include new companies that qualify under the ARRA changes, including the 'intangible property' provision and the 'functionally related and subordinate' provision," said Brian Anderson, manager of education and policy at the Council of Development Finance Agencies.

The CRC yesterday also approved a new slate of bond counsel firms. The issuer chose four firms from 17 responses to a request for proposals: Gonzalez, Saggio & Harlan LLP, Hawkins Delafield & Wood LLP, Nixon Peabody LLP, and Winston & Strawn LLP.

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