CHICAGO — The Cuyahoga County, Ohio, Public Library will enter the debt market for the first time Wednesday with a $75 million borrowing.
The new credit will sell $20.4 million of tax-exempt special obligation bonds and $55 million of taxable special obligation Build America Bonds.
The tax-exempt debt features a final maturity of 2019. The BABs include $5.2 million of serial bonds maturing in 2020 and 2021 and three term tranches, maturing in 2025, 2030, and 2035.
The library — one of the largest systems in the country — traditionally has relied on local governments to float bonds to finance buildings that the library then leased. The library decided a few years ago to begin issuing its own debt, according to finance director Scott Morgan.
“It was becoming very difficult to pass those kinds of issues in some of the municipalities where we felt we need to replace or renovate some of the branches,” Morgan said. “We decided to go for a system-wide issue instead of on an individual basis.”
As part of the decision, the system won an increase in its property tax levy last year, he added.
The debt is technically termed a note as it is payable from the state’s Public Library Fund. Ohio finances the PLF through property taxes, distributing the money among its 88 counties, which then pass it to the various library systems.
The state has scaled back its PLF distributions since 2009. Revenue, however, is still expected to be sufficient to cover debt-service payments, analysts said.
The library will use bond proceeds, as well as $15 million of its own cash, to finance renovations to 13 branches over the next three years.
Stifel, Nicolaus & Co. is the senior manager on the sale. Keybanc Capital Markets Inc. and PNC Capital Markets LLC are also on the underwriting team. Squire, Sanders & Dempsey LLP is bond counsel.
Moody’s Investors Service assigned an Aa2 rating to the debt based in part on the strong coverage levels provided by PLF receipts, the library’s stable financial operations and low debt position, and the recently approved levy. Standard & Poor’s rates the debt AA-minus, Morgan said.
The Cuyahoga County system features 28 branches near Cleveland and serves an estimated 610,000 residents. The system’s $53.3 billion tax base does not include city.
Like libraries across the country, the system has struggled with declining revenue. Management recently floated a plan to relocate some of its branches to a mall to reduce rent, but dropped the idea amid strong public opposition. Reduced state aid prompted management to implement a series of layoffs and other cuts to maintain a balanced budget.
The state-based PLF funds provide 32% of the Cuyahoga County library’s general fund, according to Morgan.
Ohio lawmakers in late 2009 trimmed PLF funds to equal 1.97% of the state’s total monthly tax general fund revenue, down from 2.22%. Cuyahoga County Public Library saw its state aid drop to $18.3 million from $20.2 million.
Maximum annual debt-service coverage totals 3.84 times, even at the lower funding level, according to Moody’s.
