WASHINGTON — The Virginia Public School Authority on Wednesday expects to competitively sell $73.2 million of direct-pay, qualified school construction bonds, using them for the first time under the new federal subsidy interest-rate option designed to open the securities to a larger pool of buyers.
Nineteen local governments will participate in the deal by issuing general obligation bonds to the VPSA, which will purchase their debt with the proceeds from the QSCB sale.
The bonds mature in 2027 and are rated Aa1 by Moody’s Investors Service and AA-plus by Standard & Poor’s and Fitch Ratings. McGuireWoods LLP is the bond counsel. BB&T Capital Markets is the financial adviser.
The local governments are responsible for the debt-service payments to the authority. Bondholders are additionally protected by Virginia’s state-aid intercept provision. In the event that a local government misses a payment to the authority, the state will withhold aid to the local government until the VPSA is paid. The provision has never been called upon.
The school projects financed by these QSCBs must be used for new energy-efficiency projects — a requirement stipulated last October by then-Gov. Timothy Kaine and reaffirmed earlier this year by Gov. Robert McDonnell. The order applies to the state’s remaining 2009 allocation for QSCBs, which include this deal.
Eligible projects include improved heating; cooling and ventilation systems; insulation; and solar photovoltaic cells for hot water, among other options. Each project was evaluated and approved by Virginia’s Department of Education and the Department of Mines, Minerals and Energy.
Virginia will still have $56 million of its 2009 allocation after this deal plus its entire $191 million allocation for 2010. McDonnell has not said yet what type of projects will be funded by the 2010 QSCB allocation.
This deal was initially planned for January, but the state delayed the issuance as Congress considered revising the QSCB program. In March, President Obama signed into law a bill that gives QSCB issuers the option of receiving Build America Bond-style direct payments from the Treasury instead of the department providing tax credits to investors.
Under the original tax-credit structure, QSCBs suffered from a lack of buyers. When the VPSA issued $61 million of the bonds as non-interest bearing tax-credit bonds in October, it priced the bonds in a negotiated deal with Goldman, Sachs & Co. as the underwriter.
Virginia sold the QSCBs at a discount to attract buyers, said Evelyn Whitley, Virginia’s director of debt management. The tax-credit QSCBs, which were supposed to provide zero interest cost to issuers, had a true interest cost of 0.67%, Whitley said.
“When we were dealing with tax-credit bonds, you had to find investors,” she said. Now, with QSCBs no different from taxable bonds, “I don’t think you have to do quite as much work to locate investors.” That difference “results in a better cost scenario,” she said.
