BRADENTON, Fla. - Sarasota last week announced that it closed on a $21 million privately placed deal in what the city believed to be the first taxable Build America Bonds sold by a Florida issuer.
Sarasota placed the $21 million of BABs with Bank of America to finance land acquisition and construction for parking, parks, and recreation. Closing on the bonds was May 26.
"By participating in the Build America Bonds program, the city will save approximately $1 million in interest payments over the bonds' 15-year term," said Chris Lyons, the city's finance director. "The annual savings will surely be put to good use in these challenging times."
With the federal government's 35% subsidy of the interest costs under the BAB program, the all-inclusive interest rate on the bonds is 3.78% and well below the 4.10% estimated cost of a tax-exempt bond issue, according to Julie Santamaria, a director at RBC Capital Markets, the city's financial adviser.
Sarasota initially distributed a request for proposals to 13 banks and lending institutions locally and nationally, and received proposals from seven lenders with a variety of proposed fixed- and variable-rate structures, including bank-qualified tax-exempt rates and taxable rates for the BABs, according to a memo prepared by Santamaria for the city.
"In the responses to the city's RFP, the Build America Bonds with the 35% interest subsidy were even lower than the bank-qualified rates, which historically have been the lowest cost tax-exempt financing. Bank qualification is a federal tax status which allows the bank to receive an additional tax benefit, which results in a lower interest rate on the loan, but would limit the city from issuing more than $30 million in tax-exempt debt calendar year 2009," Santamaria's memo said.
"A bank loan was chosen as not only was the interest rate lower than available in the municipal market, but also the issuance costs were considerably lower," Lyons said.
Bryant Miller Olive PA was the city's bond counsel on the transaction. While no rating was sought for the private placement, Sarasota's general obligation bonds are rated is AA by Standard & Poor's and Fitch Ratings and Aa3 by Moody's Investor Service.
Also in Florida, and following Sarasota's deal, the Broward County School Board on Thursday priced $63.9 million of certificates of participation sold as BABs in the muni market.
The COPs had a maturity of 2034 with a taxable yield of 7.47%, according to Thomson Municipal Market Monitor. Broward's BABs were rated A-plus by Fitch and Standard & Poor's and A1 by Moody's.
A number of issuers in Florida are considering the use of BABs, according to several market experts.
One bond attorney said his firm had seen a lot of interest in BABs recently and some issuers are soliciting bids from banks through RFPs rather than a public offering.
