ESOP Linked-Deposit Program
The Treasurer of State’s Office is responsible for the investment of monies placed in
the state treasury. On a routine basis, the Treasurer’s Office invests the state’s monies
by purchasing certificates of deposits (CDs) from Indiana’s financial institutions at
predetermined rates of interest.
A Hoosier company forming an ESOP will have to borrow capital in order for the ESOP
trust to purchase the company’s stock from the original shareholder(s).
The ESOP “linked-deposit” program will allow the Treasurer of State’s Office to link its
routine purchase of CDs from Indiana’s financial institutions to Hoosier companies
needing capital to complete an ESOP transaction. The Treasurer of State’s Office will
purchase CDs at a slightly reduced rate of interest, and the financial institution will
agree to reduce the interest rate on the loan made to the company.
State Treasurer Richard Mourdock has designated $50 million worth of CDs for the
ESOP Linked-Deposit Program.
Hoosier Companies interested in the ESOP Linked-Deposit Program should contact
their local financial institution and review additional IEI web pages regarding the
guidelines and requirements for the ESOP Linked-Deposit Program.
(1) ESOP loan rate is currently 4.25% (ESOP Loan rate = CD rate + 3.25$ or 325 bps with a minimum of 4.25%)
(2) CD rate is currently 1.00% (CD rate = Fedfund - 2.0% or 200 bps with a minimum of 1.00%)
Indiana ESOP Linked Deposit Program Form (click to open)
ESOP Linked-Deposit Program Guidelines & Requirements
General Guidelines
1) A company must have their headquarters located in the State of Indiana, conduct a significant portion of their operations in Indiana, and employ the majority of their employees in Indiana while participating in the ESOP Linked-Deposit Program.
2) The Treasurer of State will NOT make any judgment on the credit quality of any applicant but will rely solely on the credit evaluation provided by the financial institution(s) providing the transactional loan.
3) An applicant may not have an established ESOP prior to participating in the ESOP Linked-Deposit Program. (The program is for new ESOPs only.)
Investment Guidelines
1) At least 10% of ownership in the company must be transferred to the ESOP in the initial transaction.
2) The maximum amount that will be available to a company participating in the ESOP Linked-Deposit Program will be $5 million.
3) Funds will be deposited in the form of 12 month certificates of deposit (CDs) with an approved depository as defined by the Indiana Board for Depositories.
4) The CDs will be renewed on a yearly basis for up to 3 years.
a. The interest rate on the CDs will be determined by the Treasurer of State
i. The financial institution may charge the borrower up to 3.25%
more than the rate received by the Treasurer of State on its CDs.
b. CDs will be purchased by the Treasurer of State on the first and fourth Thursday of each month.
5) The interest rate for new CDs may be adjusted on a quarterly basis at the discretion of the Treasurer of State’s Office
Additional Requirements
1) A company must provide the following information to the IEI:
a. A complete business plan.
b. Resumes of key managers and substantial evidence of their commitment to service after the ESOP Linked-Deposit Program is completed.
c. A complete transition plan.
d. Names and contact information of the firms that created the ESOP trust and did the financial evaluation of the company.
Limitations of ESOP Loans
1) Availability of funding.
2) The financial institution assumes all credit risk. In the event of default by the ESOP, the linked-deposit will be terminated at the maturity of the CDs being held by the lending institution.
