BRADENTON, Fla. - Several states in the Southeast are laying the groundwork to use pooled financing to sell their allocations of Qualified School Construction Bonds authorized by the American Recovery and Reinvestment Act of 2009.
Though the ARRA provided for direct allocations of tax-credit bonding authority to the top 100 school districts in the country, it also provided larger allocations to each state. And each state is determining how its volume cap will be doled out.
Virginia, Tennessee, and Alabama hope to achieve economies of scale by using state agencies to sell their allocated QSCB volume caps and help local school districts reach the bond market less expensively through pooled programs, officials said.
Having the Virginia Public School Authority - a long-established pool program - administer and sell the state's $191.1 million allocation for 2009 seemed to be a perfect fit, said Evelyn Whitley, the state's director of debt management.
"Some small issuance amounts are difficult to bring to market," Whitley said, "so certainly we believe it to be a more efficient transaction by pooling them together."
Though pooling is the state's initial plan, Whitley also said the administration may yet develop criteria to allocate portions of the volume cap to individual districts.
This week Virginia appointed a group of underwriters for QSCBs and other tax-credit bonds the state may eventually sell. They are Citi, Goldman, Sachs & Co., JPMorgan, Morgan Keegan & Co., and Siebert Brandford Shank & Co.
Whitley said the Virginia Public School Authority expects to sell between $30 million and $70 million as its first tranche of QSCBs this fall.
Meanwhile, Alabama Gov. Bob Riley last Friday signed a bill approved during a special session of the Legislature authorizing the Alabama Public School and College Authority to sell pooled QSCBs. The state's volume cap for this year is $118.77 million.
"The purpose [of using the APSCA] is to facilitate issuance by school systems of all sizes and give them more efficient access to the marketplace," said Phil Dotts, president of Public FA Inc., the authority's financial adviser. "Some of them are relatively small and they don't have credit ratings, so this lowers the cost of issuance and makes it more beneficial to them."
Some prospective issuers of QSCBs, including the Alabama authority, are concerned that the incentive needs more issuance guidance from the Treasury Department, particularly about how to strip and sell the bonds' tax credits in the secondary market. Only a handful of QSCB deals have been done.
"My understanding from tax counsel is that we are still looking for guidance in those areas," Dotts said. "It's a new program, so that's not unusual for the regulatory guidance to come out over time. We're all feeling our way along on these things."
Though some questions remain unanswered, Alabama wanted to get the framework in place to authorize the APSCA to sell pool bonds by getting the bill passed last week while the Legislature was in special session on another matter, Dotts said.
"The intent was to get the basic structure in place so we could continue to evaluate the program and figure out what the process is going to be," Dotts said. "There's a lot of interest, I'm told, by the State Board of Education."
The state, which typically sells debt competitively, recently got proposals from underwriters to select a firm or syndicate for negotiated sales because of the volatile market. The request for proposals asked firms to include their experience in selling Build America Bonds, taxable bonds also created under the federal stimulus package, and QSCBs.
"We certainly wanted to get a sense from the underwriters' responses what their experience was and use that as an overall part of the evaluation process," Dotts said. The state got 10 responses, which remain under evaluation.
Tennessee lawmakers passed a law this year authorizing the Tennessee State School Bond Authority to sell pooled QSCBs. The state has a volume cap of $121.73 million for this year.
Tennessee recently sent out a limited RFP for qualified school construction bond underwriting services. The responses are due today.
The Tennessee State School Bond Authority anticipates selling QSCBs by Nov. 30.
In addition to selling the state's allocation, The School Bond Authority also will sell the direct allocations provided for in the federal law to the Memphis City School District, which got $41.73 million, and the Nashville-Davidson County School System, which got $21.13 million.