Project Notes

What Are Project Notes?

Project notes are short-term debt obligations issued to finance a project or try past a predefined milestone, or to fund various small projects on a short-term basis. Project notes are frequently utilized by municipalities to fund urban renewal programs and are guaranteed by the U.S Department of Housing and Urban Development.

How Project Notes Work

Infrequently, organizations need funding for short-term projects that demand one-time infusions of cash to finance. As opposed to giving long-term debt or seeking alternative financing arrangements, short-term notes are convenient and can be issued with the specific project written into the indenture so the funds must be utilized for that purpose.

Illustration of Project Notes

To act as an illustration of project funding, MidAmerican Energy Holdings issued bonds to finance its 550-megawatt Topaz Solar Farm, which was worked by First Solar, and valued at more than $2 billion. The project started in 2011 and was completed in November 2014. During the construction, MidAmerican issued $1.1 billion of bonds in two rounds of funding. This project denoted the first occurrence in quite a while that a renewable energy project tapped the capital markets for project finance, and it is the biggest project ever to do as such.

At the time of issuance, the Topaz bonds carried an interest rate of 5.75%, almost 3.8% higher than U.S. Treasury Bills, which was an appealing yield in a low-interest environment. The bonds, which will arrive at maturity on Sept. 30, 2039, began paying out on March 30, 2012, as phases of the project were completed, and have continued to pay out on a semi-annual basis.

Financial backers showed a considerable amount of interest in MidAmerican's bonds. The strong demand drove MidAmerican to increase the original amount of bonds offered from $700 million to $850 million in the primary offering, and afterward issued an extra $250 million in bonds.

This was the initial 500-megawatt plus sun based farm to come on-line in the U.S. furthermore, the biggest sun powered plant on-line in the world. The project incorporates 9,000,000 sunlight powered chargers across 9.5 square miles in San Luis Obispo County on California's Carrizo Plain. Pacific Gas and Electric Co. purchases electricity from Topaz under a 25-year agreement. The plant is expected to give sufficient renewable energy to power around 160,000 average California homes.

Features

• As opposed to giving long-term debt or seeking alternative financing arrangements, short-term notes are convenient and can be issued with the specific project written into the indenture so the funds must be utilized for that purpose.
• Project notes are regularly referred to in the context of federally funded development projects, like building nearby stops, affordable housing, or other municipal buildings.
• Project notes are short-term debt obligations issued to finance a project past a predetermined milestone, or to fund different small projects on a short-term basis.