WASHINGTON - The West Virginia School Building Authority issued $30 million of qualified school construction bonds on Thursday in the biggest statewide deal for these securities since they were authorized by the new federal stimulus law.
This is the third QSCB transaction and the first by a state since the law was enacted in February, according to Thomson Reuters. The Dallas County Independent School District sold $1.2 million of these bonds Monday and the San Diego Unified School District did a $38.8 million deal in April.
The West Virginia authority expects to use the proceeds from the tax-credit bonds to finance renovations at 38 schools in the state. The bonds are secured by state lottery revenues and have a 15-year bullet maturity.
The credit rate, which is set by the Treasury Department on a daily basis, was 6.92% on Thursday.
The bonds are secured by a "narrow" source of revenue, primarily video lotteries, according to Moody's Investors Service.
That gambling revenue might be poached away by neighboring states Maryland, Pennsylvania, and Ohio as they approve and develop similar gambling attractions, the rating agency said. But Moody's added that it expects the state's video lotteries to provide adequate debt service coverage through the life of the bonds.
The bonds are rated A2 by Moody's and A by Fitch Ratings. Standard & Poor's, which has a AAA underlying rating for the School Building Authority, did not assign a rating to the deal. The authority has about $222 million of debt outstanding, according to Fitch.
"I'm very proud that West Virginia is the first state to succeed in putting together a bond structure that is allowing us to fund school construction under the American Recovery and Reinvestment Act," Gov. Joe Manchin said Thursday in a statement. "We're able to put this funding to work immediately to improve our schools, create construction jobs and do it at a substantially lower cost to the state."
"It worked out for us to be the cheapest money we've ever had to deal with," said Jonathan Deem, the authority's chairman. "We're getting dollar for dollar, essentially."
By issuing the tax-credit bonds instead of traditional tax-exempt debt, the authority is saving money that would have been used for interest payments. The QSCBs provide the investor federal tax credits instead of interest, meaning that the issuer repays only the principal on the bonds, the cost of issuance and any underwriter discounts.
The federal QSCB program was created under the American Recovery and Reinvestment Act, which authorized $22 billion of these bonds through fiscal 2010. West Virginia's portion of the QSCB program is $78.2 million.
Other issuers have plans to use QSCBs, but West Virginia was able to expedite the process by finding a buyer quickly, Deem said. The whole deal was bought at par by Guggenheim Partners LLC, a financial services firm based in Chicago.
