Virginia Resources Authority to Sell $173 Million in Pooled Transaction

WASHINGTON — The Virginia Resources Authority on Thursday expects to sell $173.3 million of municipal bonds, including $68.7 million of direct-pay Build America Bonds, in a pooled transaction to make loans to 15 local borrowers for infrastructure and other projects.

The bond proceeds are to be used to by cities, counties, and authorities to help finance projects ranging from correctional facilities to wastewater treatment plants. In addition, some of the proceeds will be used to refinance loans for as many as seven participants.

The offering includes two types of tax-exempt revenue bonds: $71.7 million of senior-lien infrastructure bonds that are rated triple-A by Moody’s Investors Service and Standard & Poor’s and $32.9 million of junior-lien moral obligation bonds rated Aa2 by Moody’s and AA by Standard & Poor’s.

The senior-lien bonds are additionally supported by a $7.1 million operating reserve fund and are covered 1.4 times by cash flows.

The bondholders are further secured by Virginia’s intercept provision. If a local government misses a loan payment to the VRA, the state comptroller can legally withhold state funds to the government until the loan is paid.

None of the authority’s borrowers have ever missed a payment or had funds withheld under the intercept provision, which only applies to the VRA’s government participants and not the authorities.

The junior-lien bonds are supported by a capital reserve fund equal to the amount of principal and interest of moral obligation bonds outstanding.

The VRA has never needed to draw down the capital reserve fund to make a debt service payment.

All the tax-exempt bonds will have maturities of one to 19 years.

Maturities for the BABs will be determined at pricing, according to VRA officials.

Wells Fargo Securities is lead underwriter for the tax-exempt bonds, with Fidelity Capital Markets, Loop Capital Markets LLC and Morgan Stanley. Citi is lead underwriter for the BABs with Morgan Keegan & Co. and Siebert Brandford Shank & Co.

McGuireWoods LLP is bond counsel, Troutman Sanders LLP is the underwriters’ counsel, and McCandlish Holton PC is general counsel for the entire transaction.

Davenport & Co. and Strategic Solutions Center LLC are the financial advisers.

The VRA’s board authorized $450 million of bonds to be issued this fiscal year and additional bonds can be requested from the board throughout the year. In January, the Virginia General Assembly raised the cap on moral obligation bonds that the VRA can issue to $1.5 billion from $900 million.

The authority has $1.2 billion of loans outstanding to 81 local governments and agencies. The program loan pool could experience “a substantial but unlikely” default of 31% of the aggregate loan repayments and the VRA could still make debt service payments on the senior-lien debt, said Nicholas Samuels, Moody’s lead analyst on the authority.

The VRA’s third-largest loan participant, the Southeastern Public Service Authority, a solid-waste processor rated A3 with a negative outlook by Moody’s, is facing revenue declines as the waste tonnage it receives has dropped.

The SPSA, which is not a participant in the current deal, has $99.7 million in loans outstanding to the VRA, or 8.2% of its total loans.

The VRA refinanced some of the Public Service Authority’s outstanding debt without extending maturities in its last bond issuance in June. The state intercept program does not apply to the SPSA because it is not a local government, according to VRA officials.

Sheryl D. Bailey, the VRA’s, executive director, said the SPSA was “a canary in the coal mine” for the economy as many of its troubles stemmed from the housing market bust. But the SPSA is “current and timely in its [loan] ­payments,” she said.

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