Twin Falls/Chobani Yogurt
Project Summary – On February 21, 2013 the Urban Renewal Agency (URA) of the City of Twin Falls, Idaho issued $32,509,000 of Series 2013 A Tax Increment Bonds and the Local Improvement District (LID) of the City of Twin Falls, Idaho issued $32,509,000 of Series 2013 Special Assessment Bonds with a maturity of 20 years. The bonds were issued as private placement taxable bonds with Zions Bank as the purchaser. Bond proceeds financed water and wastewater expansion and land acquisition to support the construction of a new 1,000,000 square foot, $450 million Chobani Yogurt production facility, which is the largest yogurt plant in the world. The new Chobani plant is scheduled to generate approximately $7.2 million in new property taxes that that will be used to repay the annual debt service of $2.7 million. The Chobani project is one of the largest economic development projects in the history of the State of Idaho and has generated over 600 new jobs in addition to supporting one of the largest dairy economies in the Unites States with over 450,000 dairy cows.
Unique Bond Structure – A traditional tax increment bond pledges only the incremental property taxes generated from new improvements in a designated urban renewal area. The fact that 1) Chobani is the only property that generates incremental property taxes to repay the bonds, 2) the first property taxes will not be collected on the Chobani improvements until 2014 and 3) there is no historic tax collection record created a credit problem for this financing. To solve this problem, the City of Twin Falls created a LID with boundaries that only surrounded the new Chobani improvements. The LID issued Special Assessment Bonds with the same par amount and repayment schedule as the Tax Increment Bonds. This created the double pledge of the tax increment (URA Tax Increment Bonds) and a first lien on the $450 million of Chobani improvements (LID Special Assessment Bonds). Proceeds of $32,509,000 were funded only from the URA tax increment bond and no cash proceeds were funded from the LID special assessment bond. Even though the LID bonds did not deliver proceeds, they had to be issued to pledge the security. When the annual URA tax increment bond payment is made then the annual LID assessment bond payment is credited from the tax increment payment and no special assessment is levied. However, if the tax increment that is collected is insufficient to fully repay the URA bond payment then the LID would levy a special assessment against Chobani to pay the difference. If Chobani did not pay the special assessment bond payment then their property would be foreclosed and the bond holder would have first access to proceeds from the sale of the $450 million facility to repay the $32,509,000 of bonds, creating over 13 X’s coverage. Additionally, Chobani agreed to provide a guaranty that it would pay for any shortfall in the tax increment payment.
Collateral - Four sources of collateral exist for the Twin Falls Chobani financing: 1) tax increment revenues, 2) guaranty from Chobani to offset any deficiency in tax increment revenues3) special assessments against the Chobani property and 4) first lien on the $450 million yogurt facility. All parties involved benefitted from this financing structure. Chobani knows that all it has to do is pay its property taxes and it will not have to provide the guaranty or pay the special assessment payment. Chobani’s creditors were okay with the first lien on the property because the assessment was viewed as a tax. The purchaser of the bonds, Zions Bank, knew that it had over two times coverage from tax increment and 13 times coverage from the assessment bonds. Twin Falls received a huge economic boost without having to pledge any additional city resources. However, the financing had previously failed when structured solely as a traditional tax increment bond due to the concentrated risk in one tax payer and the lack of tax increment collection. The “belt and suspenders” approach from the combined tax increment and special assessment bond was likely the only structure that would have allowed the bond financing to get completed. Twin Falls issued additional $2,024,000 of Series B tax increment bonds for improvements that could not be offset by the special assessment bonds as well.