CHICAGO - Van Buren Public Schools today enters the market with nearly $80 million of unlimited-tax Build America Bonds to fund various projects, with the projected savings from the federal program especially welcome as the Michigan district seeks to stabilize its financial position.
Raymond James & Associates Inc. is the senior manager with Fifth Third Securities Inc., Edward Jones & Co., and Stifel Nicolaus & Co. as co-managers. Collins & Blaha PC is bond counsel and Stauder Barch & Associates is advising the district. The district will apply for the direct-pay 35% interest subsidy option under the BAB program.
The general obligation deal's structure mirrors that of a traditional municipal bond with a mix of serial maturities between 2010 and 2025, a $10 million term bond in 2029, a $36 million one in 2039, and a standard 10-year call feature.
Other BAB deals, all under $100 million, have used similar structures while the larger transactions have favored a more corporate-like structure with the bulk of debt in term maturities and the inclusion of make-whole call provisions that limit refunding savings.
"We looked at make-whole call provisions and it didn't make any sense given the size of the transaction," said Raymond James banker William Roche.
The firm also worked on the Milan Area School District's $49 million general obligation BAB deal last month that received strong interest using the same serial/term maturity structure and call feature that preserves refunding options.
"We have strong enough retail interest" that on deals in the $50 million to $80 million range, "there's not the same institutional demands for a corporate-like structure," Roche said. Nearly 50% of the Milan sale was placed with retail buyers, with the shorter maturities oversubscribed. Raymond James includes orders from money managers and bank trusts investing on behalf of retail clients in the retail category.
The bonds were rated by Moody's Investors Service and Standard & Poor's based on the backing of the Michigan State School Bond Guaranty program, although Standard & Poor's was asked to review the underlying credit. Under the program, the state has a constitutional obligation to provide a district with sufficient funds to make timely debt service payments if assistance is needed.
Moody's assigned the deal its Aa3 and negative outlook based on the state program. Standard & Poor's assigned its AA-minus and stable outlook. Standard & Poor's revised its outlook to negative on the underlying A-minus issuer credit.
Standard & Poor's negative outlook reflects analysts' concerns over the district's rapidly deteriorating reserves due to recent enrollment declines that have hurt its level of state aid funding and other economic pressures.
"If the district could at least stabilize its financial position and sustain structural balance in fiscal 2010 and going forward, the outlook would be revised to stable," wrote analyst Corey Friedman.
"If management is not able to make the necessary timely and corrective adjustments to its budget, whether through more favorable employee negotiations or other cost reductions, the rating will be lowered," he added.
Moody's negative outlook reflects the current outlook on the state's credit. The district covers a 61-square mile area between Ann Arbor and Detroit in Wayne and Washtenaw counties, with a population of more than 50,000.
The district will have $88 million of GO debt outstanding once the deal is completed. The borrowing was approved by voters last November.
