Regional News

Exercising Stimulus Provisions

BRADENTON, Fla. - The Broward County, Fla., School Board expects to price about $135 million of certificates of participation Thursday in what may be the first single deal structured to take advantage of two kinds of new debt authorized by the recently passed federal economic stimulus act.

The deal also will be the first to offer taxable Build America Bonds and qualified school construction bonds as COPs.

And the QSCBs, if successfully placed with a private investor, will be the first from the Sunshine State.

The proceeds would be used to build school additions or replacement facilities, as well as a new maintenance office; some funds would be used for re-roofing and installing handicap access on some buildings.

The deal is expected to be structured in three tranches, including $19.9 million of tax-exempt COPs insured by Assured Guaranty with maturities out to 2027, $64.8 million of taxable BABs with maturities out to 2035, and $49.9 million of QSCBs, which are expected to be placed privately with maturities out to 2024. QSCBs offer investors tax credits.

However, the ultimate structure depends on investors and getting the best deal for the district, said David Moore, a managing director at Public Financial Management Inc., the school board's financial adviser, along with Fidelity Financial Services LC.

The QSCBs are expected to be placed privately because this is a new program in an uncertain market, Moore said.

"We were able to find a buyer that would buy them on the terms and the conditions as good as anything that the investment banks were saying and that they committed to in the market," he said. "Once we found a buyer, we decided to lock in at those terms and felt it would be safer for the district."

Final terms of the private placement are still being worked out, but if it falls through, the district could still issue the debt in the bond market.

The district's school board has authorized the finance team to vary the remaining debt as tax-exempt COPs or as BABs.

"It's really kind of meant to be a game-time decision as to whether we do more taxable or tax-exempts, and it's purely driven by what the market wants," Moore said. "We're trying to keep it as simple as possible to see what we can do to drive down credit spreads."

If the tax-exempt amount increased, Assured Guaranty would insure the entire amount, Moore said.

So far BAB investors have not been interested in bond insurance, he said, but Assured would offer insurance on the BABs if investors wanted it.

Broward school treasurer Henry Robinson said that the transaction was readied this year as a tax-exempt COP deal, but it was delayed as a result of market conditions.

"Fortunately, the president signed into law the Build America Bond legislation and the qualified school construction bonds, so we were able to take advantage of those," Robinson said.

The bonds have been rated A-plus by Fitch and A1 by Moody's Investors Service. A rating by Standard & Poor's had not been released as of late Monday afternoon.

Florida school districts typically sell COPs, because of a state constitutional requirement that voters first approve all long-term GO debt backed by property taxes. So districts finance capital needs with COPs using a lease-leaseback structure with annual appropriations that enable them to use any legally available revenue, including primarily property taxes, to pay the debt.

"You can structure a certificate of participation with taxable interest or tax-exempt interest," said Robert Gang, a shareholder at Greenberg Traurig LLP, which is special tax counsel on Broward's offering, along with KnoxSeaton.

"The fact that the issuer receives as a subsidy a portion of the interest paid on a taxable Build America Bond from the federal government doesn't change the nature of the underlying lease transaction," Gang said. "Similarly, the structuring of a lease transaction as a tax credit qualified school construction bond similar to qualified zone academy bonds doesn't change the underlying legality of the lease transaction under state law. Qualified zone academy bonds have been sold as COPs in Florida for many years."

The Broward School Board has approximately $1.9 billion of outstanding COPs. There are about $15 billion of COPs outstanding from all Florida issuers.

Merrill Lynch & Co. is leading the syndicate on Broward's sale this week. Other underwriters on the deal are Citigroup, JPMorgan Chase, Raymond James & Associates Inc., and Rice Financial Products Co.

Shutts & Bowen LLP and Steve E. Bullock PA are underwriters' counsel.



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