WASHINGTON — The District of Columbia tomorrow expects to issue $32.9 million of qualified school construction bonds, now that a new law allows states and localities to issue certain tax-credit bonds as taxable, direct-pay subsidy bonds.
The QSCBs will be the first such bonds to be publicly offered by the district. The Office of the Deputy Mayor for Planning and Economic Development, which is responsible for the city’s revenue bonds, last week completed a private placement of QSCB tax-credit bonds.
The two types of offerings demonstrate issuers’ creativity with QSCBs to match cost savings with investors’ needs.
The $32.9 million deal represents the district’s total QSCB allocation for 2010. Proceeds from the QSCBs will be used to finance renovation projects at Woodrow Wilson and H.D. Woodson high schools.
The Series 2010D income tax-secured bonds are rated AAA by Standard & Poor’s. Ratings from Moody’s Investors Service and Fitch Ratings were revised higher to Aa1 and AA-plus, respectively, from Aa2 and AA, based on recent rating recalibrations.
District officials said they do not expect to see savings from the QSCB deal as a result of the rating revisions.
The bonds will have a bullet maturity in 2026. Most QSCB deals have been done with bullet maturities because issuers can get the maximum benefit from the federal bond program, said Lasana Mack, the district’s deputy chief financial officer and treasurer.
The transaction will include a sinking fund that will earn interest on annual deposits held in escrow, he said.
Goldman, Sachs & Co. is the underwriter. Venable LLP is bond counsel. Orrick, Herrington & Sutcliffe LLP and Lewis & Munday are representing the underwriter. Phoenix Capital Partners LLP and Public Resources Advisory Group are financial advisers.
The deal will count against the district’s 12% debt-to-expenditures cap, but will have a minimal impact on the cap because it is relatively small, Mack said. The city issued refunding bonds in March to make room under the debt-to-expenditures ratio cap for its planned debt issuances through fiscal 2014. Funding for the renovation projects was already authorized, officials said.
Last Thursday, the Hyde Leadership Public Charter School issued $12.6 million of QSCBs in a privately placed deal to M&T Bank Corp., according to William Liggins, director of the district’s revenue bond program.
The charter school paid a 0.98% supplemental interest on the QSCBs, which were issued as tax-credit bonds, he said. The deal is part of the district’s $32.9 million QSCB allocation for 2009.
Two other charter schools have found buyers and will issue QSCBs later this summer, Liggins said.
Hyde and M&T had already planned to issue those as tax-credit bonds before the new law permitted the securities to be issued as taxable, direct-pay subsidy bonds, Liggins said.
Hyde could maximize its savings with tax-credit bonds, he said. With direct-pay subsidy bonds, the district would need to monitor the charter school two to four times a year to guarantee compliance with the federal subsidy requirements. That would mean the charter school would be paying disclosure costs to auditors and the bond counsel over the 15 years the bonds are outstanding, Liggins said.
Under the tax-credit structure, the bank, as holder of the tax credit, would have responsibility to the federal government for compliance, Liggins said.
“Those are additional costs to the charter school,” Liggins said. “Now, you’re going from something that would be financially feasible to help them with their project to something that is financially burdensome.”
The district is already monitoring its public schools, so it makes sense for the $32.9 million to be issued as direct-pay bonds, Liggins said.
