BRADENTON, Fla. — With two rating upgrades to its credit rating, Mobile, Ala., today prices $56 million of general obligation warrants, a large portion of which will finance a major economic development project.
Some $33.5 million of the proceeds of the warrants, which are similar to bonds, will be applied to the city’s obligation toward the ThyssenKrupp AG steel plant under construction in northern Mobile County. The remaining proceeds of today’s sale, $22.5 million, will be used for various capital improvements in the city.
The fixed-rate deal is expected to have serial maturities between 2022 and 2028, and a $17 million term bond maturing in 2030.
The amortization is designed to provide the city with a level debt structure, said financial adviser Louis Cardinal of Thornton Farish Inc.
“We just sculptured this around the city’s existing debt,” Cardinal said.
A determination about whether to insure the deal depends on market conditions and will be made as the transaction prices today, he noted.
Just ahead of the offering, Mobile won its first rating upgrades since the early 1990s.
Moody’s Investors Service assigned an A1 rating to today’s issue, an upgrade from A2, and also assigned the higher rating to Mobile’s $185.9 million of previously issued parity debt. Standard & Poor’s raised its underlying rating to AA-minus from A-plus and assigned the higher rating to today’s sale. No underlying rating is provided by Fitch Ratings.
Analysts said the rating upgrade reflected the city’s improved financial position, healthy reserves, a growing economic tax base, and positive economic development trends.
“Mobile has a good story,” Cardinal said. “The city is doing very well with economic development efforts over the last three to four years with the steel plant coming on line and the aerospace industry.”
Alabama last year landed the German steel mill project over several other states, including Louisiana. The coveted plant is considered one of the biggest private investments in the United States in years. ThyssenKrupp is putting $3.7 billion into the project.
The company chose Alabama after being offered an $811 million incentive package by the state, its largest ever, which includes contributions from the city Mobile County.
ThyssenKrupp officials have said they expect the new plant to generate up to 29,000 jobs during construction and 2,700 new permanent jobs upon opening in 2010.
“Moody’s expects continued growth in and around the city of Mobile, given the construction of a new ThyssenKrupp steel manufacturing and processing plant, as well as various other new industrial expansions,” said a report by analyst Christopher Coviello. “The city’s economy has become increasingly diversified in recent years, following a downturn related to the closing of local paper products plants.”
With stepped-up economic activity, notably the ThyssenKrupp project, the city’s property tax base has been growing by a compounded average of 4.9% annually over the past five years to a current $1.87 billion, said Standard & Poor’s analyst James Breeding.
“Mobile’s financial position is healthy,” Breeding said. Surpluses in each of the past four years increased the city’s ending fiscal 2006 unreserved general fund balance to $18 million, or about 10% of expenditures.
The city maintains substantial reserves in its capital improvements fund that could be transferred into the general fund if required. When combined with the general fund balance, the unreserved capital improvements fund balance gives Mobile a total reserve of about $44 million, more than 20% of operating expenditures. Fiscal 2007 unaudited results indicate a combined balance of more than $50 million.Moody’s said the city’s debt burden is manageable and will gradually decline given plans to fund additional capital needs with cash, in addition to anticipating future tax base growth. Mobile’s direct debt burden is 2.2% of full valuation and increases to a still manageable 4% when taking into account the overlapping debt of local municipalities.
The city has no authorized but unissued debt and no additional borrowing plans at this time, according to Moody’s.
The book-runner for today’s sale is Raymond James & Associates Inc. Other members of the underwriting syndicate are First Tuskegee Bank, Frazer Lanier Co., Morgan Keegan & Co., and Protective Securities, a division of ProEquities Inc. Hand Arendall LLC is bond counsel.
Mobile County voters last October approved selling $70 million of GOs to pay for most of the county’s obligation toward the ThyssenKrupp plant. Mobile County Commissioners considered documents authorizing the sale of the debt at their Dec. 27 meeting. The sale date was not immediately available.
Last July, Alabama competitively sold $305 million of GOs for various economic development projects across the state. About $220 million of the bond proceeds went to support the ThyssenKrupp project.
