When Stamford, Conn., puts $50 million of general obligation bonds out for competitive bidding next week, underwriters will have the option of buying the debt as either taxable Build America Bonds or tax-exempts.
The bonds will be awarded as all tax-exempt or taxable based on the lowest true interest cost as of the dated date, according to the preliminary official statement. The city has elected to take the 35% interest subsidy that the U.S. Treasury provides to the issuer.
"After the sale we're going to take the wining bid from traditional [tax-exempt] bidding and compare it to the winning bid from the BABs bidding and net out the 35% direct subsidy for the BABs," said Barry Bernabe, vice president of Webster Bank, the financial adviser for the deal.
"We just wanted to see if these BABs bids would offer a materially lower interest cost to the city of Stamford."
By taking competitive bids for both tax-exempt bonds and taxable BABs, the issuer will be able to see an apples-to-apples comparison of interest costs using either kind of debt.
Bids will be taken via Ipreo's Parity system until 11:30 a.m. on July 28.
The bonds will be issued as serials with maturities out to 2029 and will be callable after 10 years.
Robinson & Cole LLP is bond counsel.
Stamford's decision to consider both tax-exempts and BABs in a competitive deal is an option more issuers have embraced since the program was created as part of the American Recovery and Reinvestment Act.
"We estimate that over 40 competitive issues have come to market allowing for both tax-exempt and taxable bids," Ipreo director of long-term municipals Anthony Leyden said in an e-mail. Leyden said he believed that in all of those cases, the issuer went with the taxable BABs bid.
"We are hearing from the issuer community that they are looking more and more at this option," Leyden said.
"We want to be able to facilitate this type of transaction, this type of bidding, should it become more prominent," he said. "We are looking to make enhancements to make it more simple for the issuer."
While the Stamford bonds will be sold as either all tax-exempts or all BABs, other issuers are considering combining the two, he said.
"Some [issuers] are looking to allow the underwriters to mix up the whole scale," so that some maturities would be taxable and some would be tax-exempt, Leyden said. "Something like that gets a little more complex. We're working to support that type of bid."
Stamford has sold $423.7 million of new-money bonds since 1999, including $88 million last year, according to Thomson Reuters.
Stamford, an affluent city about 40 miles northeast of Manhattan with a population of 118,475, has $347.4 million of debt outstanding, according to the POS.
The city plans to use $40 million of the issue for various capital projects and $10 million for Stamford Water Pollution Control Authority projects.
Although all the debt will be sold as GOs and backed by the full faith and credit of the city, the authority will pay its portion of the debt from water fees. This allows the authority, which Moody's Investors Service rates Aa3, to take advantage of the city's triple-A rating from both Standard & Poor's and Moody's.
