Tax-Exempt Agricultural Development Bonds (ADBs)

Agricultural Development Bonds (ADBs) are tax-exempt bonds issued by the North Carolina Agricultural Finance Authority (NCAFA), which has authority under the North Carolina General Statutes (Chapter 122D) to issue bonds for many purposes. ADBs can be used to finance a wide range of agricultural projects that involve 'processing' or 'manufacturing' of agricultural products as long as the projects qualify for federal tax exemption under the Internal Revenue Code, resulting in lower financing costs to the borrower. Examples of ADB financings include cotton gins, feed mills, meat processing facilities, and agricultural waste to produce green energy. ADBs cannot be used for refinancing.

Firms undertaking qualifying agricultural 'processing' or 'manufacturing' projects that qualify for federal tax exemption under the Internal Revenue Code. Determination of eligibility under the federal tax code must be done by bond counsel, and not every qualifying project will be acceptable to NCAFA as an 'agricultural' purpose.

Firms considering ADBs should contact NCAFA early in the process; NCAFA will advise on how to proceed with a bond issue. Certain steps such as the 'Inducement' should be completed prior to expending money on the project (expenditures prior to inducement may be excluded from the bond issue in certain circumstances). It is highly recommended that the firm discuss letter-of-credit and bond-security requirements with NCAFA before finalizing, to avoid delays.