BRADENTON, Fla. — Broward County in southeast Florida later this month plans to sell $220.2 million of revenue bonds, most of which will be taxable Build America Bonds. The deal represents the county’s first use of BABs and the first time it will leverage a local half-cent sales tax.
Proceeds will go toward the construction of a $338 million, 20-story, courthouse complex, which will also be funded with $120 million of available capital funds.
The deal is expected to be sold as $42.2 million of Series 2010A tax-exempt revenue bonds, $129.2 million of Series B BABs, and $48.8 million of Series C taxable recovery zone economic development bonds. Revenue from a half-cent sales tax will secure the debt. Interest on Series B and C will be subsidized by payments from the U.S. Treasury, which also will be applied to debt-service payments.
The preliminary official statement will be released on or before June 16. Pricing currently is scheduled for June 21-23.
Broward officials are planning to use a bifurcated structure with the tax-exempt bonds maturing in the early years between 2011 and 2020. The BABs mature between 2121 and 2036. The RZED bonds mature from 2037 to 2040.
“The deal is also structured to include level net debt service after subsidies,” said county chief financial officer Dinah Lewis.
Although BABs have become more controversial with the potential that the subsidies could be offset if an issuer owes the federal government money, Lewis said, “We are aware of the issue but believe there is minimal county exposure to the offset.”
The Series B and C subsidy bonds are expected to have extraordinary call provisions in the event of changes in the federal BAB program.
While sales tax revenues have declined due to the recession, Broward’s collections in fiscal 2009 totaled $59.3 million, enough to provide 3.4 times coverage of maximum annual debt service without consideration of the BAB subsidy.
Because this is Broward’s first time using BABs and a new sales tax structure, ratings were released in mid-May, well in advance of pricing to maximize marketing time, Lewis said.
The bonds have been rated AA-plus by Fitch Ratings and Standard & Poor’s and Aa2 by Moody’s Investors Service.
“The county has stressed proactive fiscal management with the rating agencies, and the agencies cited this among the strengths of the bond issue,” Lewis said. “This issue includes a new sales-tax-lien structure with strong coverage and no additional bonds are anticipated to be issued at this time.”
Analysts cited Broward for consistently sound and strong financial performance.
The county’s general obligation ratings were recently upgraded to triple-A by Fitch and Moody’s, which formerly rated the GOs AA-plus and Aa1. The upgrade affected $446 million of outstanding GO debt. Standard & Poor’s rates the credit AA-plus.
Investors should be comforted by Broward’s “history as a premier county in Florida in terms of managing their finances,” said John Rodstrom, an 18-year county commissioner and a managing director of public finance for Sterne Agee & Leach Inc.
To avoid the appearance of a conflict with his job, Rodstrom said he abstains from participating in any votes pertaining to investment banks. Sterne Agee is not involved in the transaction.
Rodstrom did vote against the courthouse project when it came before the County Commission.
“I thought the voters ought to have a say in it,” he said. “We need a new courthouse. But I wanted voters to tell me if they want to raise their taxes.”
Rodstrom is concerned the financing could force the commission to raise taxes if revenues securing the bonds fall short.
Nearly 60% of Broward voters rejected using GO bonds to build a new courthouse complex in a November 2006 referendum. At that time the old courthouse — built in the 1950s — suffered from electrical problems, leaky pipes, and overcrowding. It also was damaged during hurricanes that hit the state in 2005.
Since then, Broward’s economy like other counties has become stressed with the recession. Its unemployment rate is 12% and a high number of home foreclosures is taking its toll on property values resulting in lower revenues for the county budget.
For fiscal 2010, county government eliminated 1,000 positions and cut $109 million, Rodstrom said, adding that commissioners may be forced to cut another $100 million in next year’s budget and make significant layoffs.
“Times are not good at the moment,” he said. “I would tell you I do not want to balance the budget by using reserves.”
Despite being on the losing end of the courthouse financing vote, Rodstrom said investors in Broward’s bonds should not be concerned because the county will continue to manage its finances prudently.
“From an investor’s standpoint it is a great piece of paper and the county is deserving of its high credit ratings because we manage our finances well,” he said.
Broward is the second-most populated county in Florida with nearly 1.8 million residents. It is part of the South Florida metropolitan area, which includes Miami-Dade County to the south and Palm Beach County to the north. The county seat is Fort Lauderdale.
Public Financial Management Inc. is the county’s financial adviser for the courthouse bond sale.
Morgan Stanley is the senior managing underwriter on the deal with Citi, Goldman, Sachs & Co., and Siebert Brandford Shank & Co. as the co-managing underwriters.
Bond counsel is Edwards Angell Palmer & Dodge LLP. Disclosure counsel is Bryant Miller and Olive LLP. Underwriters’ counsel is Moskowitz, Mandell, Salim & Simowitz PA.
