The Atlanta City Council Monday voted to pay a swap termination fee to UBS AG that could cost as much as $25 million. The swap was used to hedge $217 million of the city’s variable-rate water and sewer bonds.
When the city sold $145 million of Series 1999A-1 bonds maturing in 2029 and 2038 and $71.85 million of Series 1992A-2 bonds maturing in 2022 and 2038 the debt received ratings of A from Fitch Ratings and Standard & Poor’s, and A2 by Moody’s Investors Service. The bonds are currently rated BBB-plus by Fitch, Baa1 by Moody’s, and A by Standard & Poor’s.
Carmen Pigler, Atlanta’s chief of debt and investments, said UBS had the right to exercise termination if the bond ratings dropped to the triple-B level. “We will sit down with UBS and we’ll decide on a day that we will terminate and the market prices that day will decide the termination rate,” Pigler said.
There currently are no plans to refund the underlying variable-rate bonds as “short-term rates are pretty low right now,” and the bonds are supported by a credit facility, according to Pigler.
The council authorized a swap termination payment not to exceed $25 million. The funds will come from the water and wastewater sinking fund into which swap payments had been deposited.
The council also approved a resolution that would give area voters the opportunity to fund the city’s growing public safety and infrastructure needs through a municipal option sales tax, or MOST.
The measure must be approved by the Georgia General Assembly before it goes to voters in a referendum. The Legislature is in session through late March.
Atlanta’s public infrastructure — including its public safety capital needs — will cost an estimated $3.1 billion over the next 25 years and the immediate infrastructure backlog will cost $750 million, a city official said.
Some 55% of the city’s fleet of vehicles and 40% of facilities are past their effective life cycle, while 47% of streets covering 796 miles are past their resurfacing life cycle. Another 11% of the city’s bridges are functionally obsolete or structurally deficient.
It was not immediately clear if the city would leverage the tax with bonds.
The tax would capture revenue from non-residents who use the city’s police, fire, emergency, and related court services as well the city’s streets, sidewalks, and bridges, according to Atlanta City Council member Michael Julian Bond, who sponsored the resolution requesting lawmakers approve holding the referendum.
A proposed referendum date has not yet been set, but the MOST would be placed on a ballot prior to 2012, according to the resolution approved on Monday.
