CHICAGO — The Metropolitan Council of the Twin Cities of Minnesota enters the market this week and returns later in the month with more than $400 million of new-money and refunding general obligation bonds that offer investors top-rated tax-exempt and taxable paper.
On Tuesday, the issuer will take competitive bids on $65 million of wastewater bonds, $93 million of wastewater refunding debt, $58 million of new-money and refunding transit capital bonds, and $7 million of park bonds. All carry the authority’s triple-A GO pledge, though wastewater bonds are repaid with user fees.
The council returns to the market on June 26 to take competitive bids on $215 million of taxable wastewater debt. The bonds have been previously refunded, making them taxable. The present-value savings is anticipated at about $10 million, while savings on the tax-exempt refundings are estimated at between $9 million and $10 million.
Bolstered by the refunding tranches, the deal is larger than what the council typically offers annually. “We are expecting the taxable bonds to be pretty attractive to investors,” given the short supply of triple-A-rated taxable municipal paper, said treasury senior manager Allen Hoppe.
The council may return to the market later in the year with grant anticipation notes ahead of its receipt of federal funds tied to a $900 million Central Corridor light-rail expansion, according to council chief financial officer Mary Bogie.
Springsted Inc. is advising the council on the transactions and Kennedy Graven is bond counsel. The council had long used Dorsey & Whitney but chose Kennedy Graven over Dorsey last year after a competitive selection process, Bogie said. Minnesota also chose new law firms over Dorsey last year, but Bogie said the council decision was not tied to the state’s.
Moody’s Investors Service and Standard & Poor’s affirmed the council’s gilt-edged ratings on a total of $1.4 billion of debt. The council was established in 1967 by the state Legislature to manage regional planning in the seven-county Twin Cities region around Minneapolis and St. Paul, home to nearly 2.9 million with a property tax valuation of $268 billion.
The rating’s strengths reflect the strong regional economy, well-managed operations, operating flexibility and sound transit operations with healthy liquidity. The general fund carried a healthy balance of $23.2 million, 116% of revenues in 2011, and is expected to increase to $25.3 million this year. The agency is moving to fully fund its $328 million unfunded other post-employment benefits liability and has set aside $120 million for that purpose.
Challenges include recent annual 2.9% declines in property valuation and risks associated with the performance of motor-vehicle sales taxes and cuts in state support. Motor fuel taxes account for 46% of the council’s transit revenues, with 10% coming from the state. The council has seen a decline in state aid since fiscal 2010, including a $52 million reduction in Minnesota’s 2012-13 budget. Bogie said the agency budgets for a lower 95% of certified appropriations to offset the impact of cuts.
Moody’s also noted the uncertain impact a possible regulatory state mandate and a related lawsuit could have on sewer rates in the next decade. The council last fall joined the state in a lawsuit against 3M relating to its release of perfluorochemicals into the environment. The council hopes to recover the costs.
