Temporary financing-funds borrowed from private investors; refinancing
Source version current through Sep 15, 2021
Later State Register activity may affect this section.
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Where authorized or directed by the division, temporary loan notes issued to private investors may be refinanced, upon maturity, by a new issue of temporary loan notes. The new temporary loan notes must be authorized by separate and appropriate resolutions of the local agency. These resolutions authorize the execution of new requisition agreement, the execution and deposit, in escrow, of a new advance loan note, the cancellation, upon payment of the maturing issue of the temporary loan notes out of the proceeds of the issue of the new temporary loan notes, of the old requisition agreement and old advance loan note, and the execution and issue of the new temporary loan notes. The resolutions authorizing the contracting of indebtedness (§ 1643-2.2, subd. [b]) and the execution and issue of certificate of indebtedness and of advance loan notes in the aggregate maximum principal amount of the loan contract cover refinancing as well as the initial financing and so are not required to be passed each time refinancing is undertaken.
Depending on the progress made and anticipated in the development of the project, the new temporary loan notes issued to refinance a maturing issue of temporary loan notes may be for a larger principal amount than the old notes, or for the same amount, or for a lesser amount. Generally speaking, only the difference, if any, between the principal amounts of the old and new temporary loan notes will be received or disbursed by the local agency and so pass through the project's development fund. The proceeds of the new issue of temporary loan notes will first be applied by the bank designated as paying agent for the old temporary loan notes directly to the payment of the principal of and interest on the old notes and this portion of such proceeds will not, ordinarily, pass through the project's development fund.
Assume that an initial issue of $500,000 of temporary loan notes, secured by an advance loan note for $505,000 is to be refinanced by a temporary loan note issue of $600,000, secured by an advance loan note of $606,000 and that the aggregate maximum principal amount of the loan contract is $2,200,000. Before the refinancing, the general ledger balances of the affected accounts would be as follows:
Account 2120, Temporary Loan Notes Payable $500,000 Cr.
Entry (4): Through the Cash Receipts Register, upon receipt of the
check for the difference between the principal amounts of the new and
old Temporary Loan Notes:
Debit: Account 1111, Development Fund $100,000
Credit: Account 2120, Temporary Loan Notes Payable $100,000
Note:
No accounting entry is made to reflect passage of the resolution authorizing the execution of the new requisition agreement and the advance loan note in the sum of $606,000 and the cancellation of the old requisition agreement and advance loan note. The new advance loan note is shown as a footnote to the balance sheet as described in subdivision (b) of section 1643-2.4.
Where the new temporary loan notes are to be issued in the same amount as the maturing notes, no funds will ordinarily flow through the project's development fund.
Note:
No accounting entry is made to reflect the passage of the resolution authorizing the execution and issue of the new temporary loan notes or the execution and deposit, in escrow, of the new requisition agreement and advance loan note, the latter being the subject of a balance sheet footnote, as previously described.
Where the new temporary loan notes are to be issued in a lesser amount than the maturing notes, the difference between the principal amounts of the new and old notes will, ordinarily, be disbursed by the local agency out of development funds on hand. The accounting entries are as follows:
Entry (5): Through the Cash Disbursements Voucher Register:
Debit: Account 2120, Temporary Loan Notes Payable $100,000
Credit: Account 1111, Development Fund $100,000
Interest on temporary loan notes outstanding is accrued quarterly as described in Part 1644, Debt Service.
Entry (6):
Debit: Account 1111, Development Fund $95,000
Debit: Account 2132.2, Accrued Interest Payable—Temporary
Loan Notes 5,000
Credit: Account 2120, Temporary Loan Notes Payable 100,000
Entry (7):
Debit: Account 2132.2, Accrued Interest Payable—Temporary
Loan Notes $5,000
Credit: Account 1111, Development Fund $5,000
Entry (8): Through the Cash Receipts Register, upon receipt of the
State's check:
Debit: Account 1111, Development Fund $505,000
Credit: Account 2312, Certificates of Indebtedness Unissued $505,000
Entry (9): Through the Cash Disbursements-Voucher Register:
Debit: Account 2120, Temporary Loan Notes Payable $500,000
Debit: Account 2132.2 Accrued Interest Payable—
Temporary Loan Notes 5,000
Credit: Account 1111, Development Fund $505,000
Note:
Upon payment of the temporary loan notes, the escrow agent will return the requisition agreement and the advance loan note to the local agency, marked “cancelled”. The local agency should hold the latter in its files.
Entry (10):
Debit: Account 2120, Temporary Loan Notes Payable $500,000
Debit: Account 2132.2, Accrued Interest Payable—
Temporary Loan Notes 5,000
Credit: Account 2312, Certificates of Indebtedness Unissued $505,000
Explanation:
To record the payment and cancellation of temporary loan notes nos., out of the proceeds of short-term borrowing by the State, and the execution and issue of certificate of indebtedness no. .