Voice from the Past
Chapter 12

The recent death of my old friend and partner George Ramspeck led me to reminisce about our work together on industrial development bonds over thirty years ago. George came from the corporate side of Chapman and Cutler and I from the municipal side. To begin with, he drafted the leases (State statutes then required leases; they did not permit loan agreements nor documents openly called sale agreements) and I the indentures.

I had worked on bond issues for port facilities that were supported by lease rentals, and when I had asked my senior partner about a form of lease, he said, "Just let the parties prepare whatever sort of lease they want, and make sure that the lessee is required to pay enough to retire the bonds no matter what." This attitude was appropriate to the very earliest industrial development bonds that were voted general obligations, but I wondered whether a longer and more complicated document should be used for industrial development revenue bonds. Now I am glad that all those bonds have matured and that the huge number of contingencies covered by more recent lease agreements didn't mature into problems that anyone brought to my attention.

George brought a new form of lease to the deals, one that was known for a few months as the "Dewey Ballantine" form. It became the model for all the financing leases I worked with for many years. This was in the days when some State supreme courts still held that even revenue bonds for industrial development involved unconstitutional loans of credit to the lessees; we had to examine every clause in every section to make sure that nothing would give a court an opportunity for such a holding. This done, I considered the form properly purified and often used it in my own deals.

In those days we had to get a State supreme court decision upholding an issue of industrial development bonds, even revenue bonds, before we could approve such bonds of an issuer in that State. Several States, including Texas and Florida, initially held against such financing. It was a welcome day, from the State constitutional law viewpoint, when the Michigan Supreme Court upheld an issue of IDB's with an opinion declaring that the issuer was a mere "conduit" to bestow federal income tax exemption on the interest on a private borrowing: having no independent liability on the bonds, the issuer would not violate that State's Constitution by issuing them. This was the first time I had seen the word "conduit" officially used; it was helpful in elucidating to other State courts the true nature of such obligations. It was not so helpful when it came to the Internal Revenue Service and Congress. But their actions were several years in the future.

On at least one deal in Louisiana, we were told to draft the documents so that the issuer was in charge of building the facility being financed pursuant to plans and specifications furnished by the company. The issuer let the contracts and directed payments out of the construction fund when approved by the issuer's representative (who just happened to be an official of the company). The purpose of this exercise was to take advantage of the issuer's exemption from State sales taxes on the building materials and equipment. If I found out whether it worked, I have now forgotten. This practice had the problem that if the issuer really was the owner and builder, then the laws pertaining to public advertisement for construction bids applied. Further, there was the question about State laws requiring that construction workers on publicly owned projects be paid the "prevailing wage," a wage that was often determined by reference to local construction trade unions.

Those days were busy, indeed hectic. For each of the early deals, George and I both went to an initial meeting, usually in New York, with the underwriter and the company. Then there was a meeting with the issuer in its home territory. Drafting sessions were held in either of those places or sometimes in our offices in Chicago. The sale of the bonds occurred locally. Signing the bonds at the Signature Company and delivery occurred in New York. Sometimes bonds were delivered in Chicago after being signed at the office of a Chicago printer that had a signature machine of less capacity than the Signature Company's. The bonds were always issued in coupon form, and we always examined executed bond number one. This involved not only reading the text of the printed bond against the form prescribed by the indenture, and checking the signatures and seal, but also making sure that the coupons were in the right amounts falling due on the right dates and bearing the facsimile signatures of the people who signed the bonds.

Sometimes an issuer's clerk with a name like Aloysius Montgomery Jones would provide specimen signatures bearing his full name for printing the coupons and then, after looking at the huge stacks of $5,000 denomination bonds he had to sign manually, would sign them A.M. Jones. Then he would sign the signature identification certificate Aloysius M. Jones. One of us would have to prepare a special certificate at the pre-closing or the closing for him to certify that all three were his true and genuine signature and that he used them interchangeably. With virtually all bonds now in fully registered or book entry form, newer bond lawyers don't realize all the exciting fun they are missing.

When Congress enacted the initial laws eliminating the federal tax exemption for interest on industrial development bonds (with exceptions for certain small issues, pollution control bonds, exempt facilities bonds, and the like), the amount of IDB's being issued fell to a trickle. There was not enough work for both George and me, and I went back to working on conventional bonds, including advance refunding bonds. George, however, continued working on most of whatever IDB's were being done by our firm. The small issue, pollution control, and exempt facility business then prospered; he hired more lawyers and eventually developed one of the major departments of the firm. Wisely, George retired before the Tax Reform Act of 1986 decimated that business.

Manly W. Mumford