Lincoln-University Agency to Competitively Sell $100M of RZEDBs, BABs

CHICAGO — A new bond-issuing authority made up of the University of Nebraska and the city of Lincoln will take competitive bids Wednesday on nearly $100 million of recovery zone economic development bonds and Build America Bonds.

The taxable deal marks the West Haymarket Joint Public Agency’s second financing for a new sports and entertainment arena. In August, the agency sold $100 million of BABs to launch the development, the largest in Lincoln’s history.

The $344 million price tag relies on $320 million of public money. A tax increase targeting the city’s bars, restaurants, hotels, and car rentals will back most of the debt.

Wednesday’s sale features $23 million of recovery zone economic development bonds — the city’s full allocation under the federal program — and $67.9 million of BABs. The latter receive a 35% interest subsidy from the federal government while RZEDBs get a 45% subsidy. All the debt carries the general obligation pledge from the triple-A rated city.

The authority will pay interest-only for the first 10 years. The BABs mature in 2039 and the RZEDBs mature in 2045.

Standard & Poor’s rates the bonds AAA and Moody’s Investors Service rates them Aa1.

Ameritas Investment Corp. is the city’s longtime financial adviser. Lincoln-based Gilmore & Bell PC is bond counsel.

Officials originally planned to issue the second round of BABs next year in hopes that the program would be extended by Congress beyond this year, but decided to push the sale forward amid the low interest-rate environment. With rates recently rising, the agency hopes that by entering the market before Thanksgiving it will still be able to keep borrowing costs lower than if it waited.

“My concern is that we would wait out the market only to have interest rates go up permanently by the time we issue them next year,” said Lincoln’s finance director, Don Herz.

“We’re optimistic that we will still get a fairly decent rate,” he added. “We just felt we should secure a bit more funding for the project at these lower rates and we felt we could spend down $200 million in a reasonable amount of time.”

Herz said he was “very happy” with the results of its August BAB sale, which saw a final interest cost of 3.205% after the subsidy. Before the subsidy the interest rate was 4.87%. Wells Fargo was the winning bidder on the sale.

The project budget assumes borrowing costs of 5%, though the finance team is hoping for costs around 4%, Herz said.

The occupation tax backing the bonds will take effect in January 2011.

“The primary backstop is the full faith and credit of the city’s property tax base, but we have no intent to have to levy property tax as we’re confident that once the occupation tax goes into effect, it will cover the debt-service payments,” he said.

The Haymarket bond agency has the ability to levy an unlimited tax on the city if revenues fall short of debt-service payments, a feature that boosted its rating. The agency consists of Lincoln’s mayor, a member of the City Council, and a member of the university’s Board of Regents. The authority would own the arena and rent it to the city, which in turn would rent it to the university.

The school’s Huskers basketball teams will play there for 30 years, starting in 2013.

For reprint and licensing requests for this article, click here.
Higher education bonds Nebraska
MORE FROM BOND BUYER