Refinancing debts is a common tactic utilized by owners to help secure funding for a construction project. The advantage of refinancing debts is twofold:
- Allows the owner to save interest charges by refinancing at intermediate stages of the construction project.
- Allows the owner to permit changes in the operation of a project once completed.
If you are currently working with an owner who plans to refinance, consult a construction lawyer in Franklin, TN to find out how you could be affected.
When an owner establishes a borrowing agreement during a period of high interest rates, a repurchase agreement can be utilized to refinance a project at a reduced rate. There is a clear advantage to refinancing when interest rates declines because the owner can usually cover transaction expenses associated with purchasing outstanding notes or bonds and acquiring new financing at this time.
Furthermore, the owner can reassess their investment in the backend, after construction has been completed, to open up new revenue streams and increase the value of their investment. If you currently have outstanding bonds, your ability to access revenues will be limited or restricted altogether until the bond is settled. This is another safeguard for bondholders who need a second layer of protection to mitigate instances of nonpayment. However, when you repurchase bonds you remove these restrictions.
For example, if several bridge authorities had restrictive bonds limiting toll revenues, they could repurchase their bonds to undertake new operations to continue generating profits. This can occur deliberately, even if a repurchase agreement was never drafted into the original bond. Also, a borrower can pay a premium to withdraw a bond ahead of schedule.
Contractors and Owners
Although the overall financial success of a project is dependent on the owner, the contractor’s role is commonly scaled to supplement the owner’s skill, or lack thereof, handling project finances. As a contractor, you may find yourself wondering why you wasted your time dealing with a novice owner. Fortunately, you will always be protected from nonpayment and disorganization by partnering with a construction law attorney in Franklin, TN.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.