BRADENTON, Fla. — Shelby County, Tenn., next week is preparing to competitively sell $120 million of double-A rated, uninsured general obligation debt, half of which may be sold as taxable Build America Bonds.
The offering will be sold as $60 million of Series 2009B tax-exempt bonds on Ipreo LLC’s Parity bidding platform at 10 a.m. Tuesday Eastern Time. Electronic bids for $60 million of Series 2009C bonds will be taken at 10:30 a.m. Tuesday and bidders have the option to submit pricing for BABs or tax-exempt bonds.
If the 2009C bonds are issued as direct-pay BABs, as authorized by the federal stimulus, the county expects to receive a 35% subsidy from the Treasury Department on interest costs.
While most issuers are selling BABs by negotiation, Shelby County believes it can get better pricing with a competitive sale, said Michael Swift, deputy director of the county’s Division of Administration and Finance.
“Compared to most BAB sales, this is small and we felt like it would sell competitively without any problem,” he said. “I think if our ratings weren’t as high as they are, we probably would not have gone with a competitive sale.”
Shelby County, which sells all debt for local schools, will use proceeds to permanently finance school projects that were initially funded with short-term capital outlay extendible municipal commercial paper notes,
While the transaction is structured to provide level debt service, it also is being offered in two series because of restrictions associated with using BABs to refund or refinance debt, Swift said. Only financings of notes that occurred after the enactment of the federal stimulus act can be refinanced using direct-pay BABs.
The Series 2009B bonds are expected to have serial maturities from 2011 to 2024 and they will be callable April 1, 2010, at par. Term bonds are not allowed for this these bonds, according to the notice of sale.
The Series 2009C bonds are expected to have maturities from 2025 through 2034, and bidders are allowed to designate term bonds. The bonds are callable on April 1, 2019, at par. If the bonds are sold as BABs they are subject to extraordinary optional redemption through April 1, 2019, if the federal government fails to provide the 35% subsidy.
“If someone bid a lower price to do it all as tax exempt bonds, then we’d do it tax exempt but our every indication is that we should get a better rate from BABs,” Swift said.
Ratings of AA, Aa2, and AA-plus have been assigned to the bonds by Fitch Ratings, Moody’s Investors Service, and Standard & Poor’s respectively. All three agencies also affirmed those ratings on approximately $1.6 billion of outstanding GO parity debt.
Shelby County includes Memphis and is considered a major financial, industrial, and health care center in western Tennessee.
Next week’s sale could be the last for the county this year, although market conditions are being monitored for refundings, Swift said.
Public Financial Management Inc. and ComCap Advisors, a division of Community Capital, are the county’s financial advisers. Edwards Angell Palmer & Dodge LLP is bond counsel.
