CHICAGO - The Indiana Finance Authority plans to enter the market Thursday with two separate bond issues, including $55 million of variable-rate revenue bonds that will mark the final piece of financing for the new home of the National Football League's Indianapolis Colts just weeks from its grand opening.
Also on Thursday, the IFA will convert $70 million of five-year-old correctional facility auction-rate securities into variable-rate demand bonds supported by a standby bond purchase agreement. After the transaction, the authority will have refinanced all of its outstanding ARS debt, a months-long effort that began in March after the auction market began to collapse amid the credit crunch and downgrades of bond insurers.
The IFA enters the market this week with an upgrade in hand. Standard & Poor's Friday boosted its rating to AA-plus from AA on the IFA's debt that carries a state appropriation pledge at the same time that it upgraded Indiana's issuer credit rating to AAA from AA-plus.
"It is very nice to be upgraded before we have two series of bonds in the market," said Jennifer Alvey, public finance director for the state. "We'll save the taxpayers money."
This week's stadium transaction marks the third tranche of financing for the new $750 million Lucas Oil Stadium. In 2005, the authority sold $400 million in lease appropriation bonds to launch construction of the 63,000-seat stadium with a retractable roof, and in 2007 it sold $211 million. The first two tranches were sold as auction-rate securities, which the authority in late March converted to VRDOs supported by a standby bond purchase agreement with a group of four banks.
This week's tranche will also be sold as variable-rate demand bonds supported by a standby bond purchase agreement with a syndicate being led by RBS Citizens N.A., and including JPMorgan Chase Bank, N.A., and Bank of New York.
JPMorgan Chase & Co. is the underwriter and remarketing agent on the stadium debt. Bingham McHale LLP is the IFA's bond counsel. Lamont Financial Services Corp. and Swap Financial Group are financial advisers.
All of the stadium debt is structured as variable-rate demand bonds hedged by a series of forward-starting floating-to-fixed rate swaps. For the upcoming debt the authority entered into a new swap with Bank of New York. Under the terms of the new swap, the IFA will pay 3.796% and receive the Securities Industry and Financial Markets Association municipal swap index.
"[Issuing] the variable rate with the swap was much better pricing for us than going out with fixed" rate debt, said Alvey.
The rest of the stadium debt has swaps with JPMorgan Chase and Goldman, Sachs & Co.
The swaps kick in Aug. 16, the day of the stadium's grand opening.
All the bonds are backed by an annual appropriation pledge from the state. But it's expected that debt service on the bonds will be paid through various tax revenues, including food and beverage taxes among other taxes. "We don't ever expect to draw upon the appropriation," said Alvey.
The stadium will open Aug. 16 for the first in a series of five free tours for the public. The Colts have a preseason game against the Buffalo Bills scheduled for Aug. 24. The stadium recently flooded after two rainstorms, but is expected to open to the public on time, said officials
Also Thursday the authority plans to convert $67.8 million in auction-rate debt into variable-rate demand bonds that will continue to be insured by Financial Security Assurance Inc., one of three remaining monoline insurers to carry a triple-A rating. The debt will be supported by standby bond purchase agreement with.
A series of existing swaps prompted the authority to issue variable-rate demand bonds so that it could avoid termination payments, said Alvey.
Morgan Stanley & Co. is the senior manager on the deal, with City Securities Corp., RBC Capital Markets, and SBK-Brooks Investment Corp. rounding out the underwriting team.
Originally issued by the Indiana State Office Building Commission in 2003, the bonds refunded earlier debt that financed construction and renovations of the Wabash Valley Correctional Facility and the Rockville Correctional Facility.
Ahead of the sale, Fitch Ratings assigned a AA/F1-plus to the stadium debt with a stable outlook, and confirmed its underling AA rating on the authority's $67 million in facilities revenue debt.
