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The Bonds are secured by, and are paid solely from, a
direct pay Letter of Credit issued by Mercantile
Capital Finance Corporation No. 30 (the "Credit
Institution") to secure and provide the source of
repayment of the principal of, and interest on, a loan
to be made to the Developer to finance the Development
(as hereinafter defined) with respect to which the
Bonds are issued. The sole source of payment of the
Letter of Credit is a guaranteed investment contract
. . . described herein, the payments on which are to be
made to the First National Bank of Commerce, New
Orleans, Louisiana, as collateral agent (the Collateral
Agent").
The Secondary Offering Statement for the Whitewater bonds is
identical except that Mercantile Capital Finance Corporation
(MCFC) No. 47 is substituted for MCFC No. 30. The letters of
credit (secured by the guaranteed investment contracts) were,
thus, in substance, if not in form, investment property held by
the Housing Authority. I say that for the following reasons:
The letters of credit were to be the source of funds to discharge
the Housing Authority's nominal obligation to repay the bonds.
The developer notes were of no economic consequence to the
Housing Authority (or to the bondholders). Neither the Housing
Authority nor the bondholders necessarily cared whether the
developer notes were paid. Indeed, it is difficult to see how,
if the deal had gone as planned, the developers could have paid
off both the developer notes and the reimbursement notes (issued
to pay for the letters of credit). Based on that rationale, I
would say that the letters of credit were acquired by the Housing
Authority and were not acquired in order to carry out the
governmental purpose of the issue. Accordingly, the letters of
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