BRADENTON, Fla. — The Orlando-Orange County Expressway Authority in central Florida is extending the call date on all or a portion of $185.8 million of term bonds at the request of Citi.
The investment bank owns 99.7% of the OOCEA’s 2007A term bonds and asked for a four-year extension of the redemption date as part of its own “portfolio rebalancing strategy,” the bank said in a proposal to the authority.
Citi is paying the authority $5.57 million, plus associated costs, to extend the call rights on the 2042 maturity of its 2007A fixed-rate bonds.
The bonds are callable in 2017 but the extension would make the first optional redemption date in 2021, according to agency documents.
The authority’s bonds are part of $12 billion of municipal bonds Citi holds, and the request to extend the call date was required after evaluating call risk in the bank’s investment portfolio.
The payment represents 3% of the par amount of the bonds, which corresponds to the OOCEA’s debt policy for minimum present-value savings that must be achieved if the bonds were being refunded.
“By utilizing these funds for debt service, the authority could accomplish two things — improve cash flow and improve debt-service coverage,” officials said in documents presented to the authority board.
The 3% payment, and extending the call date to 2021, alters the yield of the bond by less than 20 basis points, so the deal should not be considered a reissuance for tax purposes, Citi said.
The proposal was reviewed by the authority’s bond counsel, who verified that Citi’s payment could be used for certain purposes such as making debt-service payments.
It is not expected to trigger a reissuance.
Citi said it holds all but $500,000 of the outstanding bonds.
Some $110,000 of the $500,000 was held in Citi’s retail system and “would likely be purchased by Citi,” the bank said. That would leave $390,000 of bonds held by other investors.
The authority had not received consent for the call extension from any bondholders other than Citi, OOCEA chief financial officer Nita Crowder said Monday.
The extension will only apply to bonds held by Citi, and the bank’s bonds will receive new CUSIPs.
A supplement to the bond resolution extending call date was to take effect Tuesday though Crowder said it likely would be executed several days later.
Holders who elected not to consent to the call extension will not be affected, and the first optional redemption date for their 2042 term bonds will remain July 1, 2017, Crowder said.
Those CUSIP numbers will not change.
The 2042 term bonds were insured in the primary market by Financial Security Assurance Inc., which was expected to agree to the extension.
Berkshire Hathaway Assurance Corp., which insured some of the bonds in the secondary market, was also expected to consent to the extension.
The $185.8 million of term bonds were issued in June 2007 with a 5% coupon at an initial offering price of $104.
The bonds were part of a $425 million deal sold by the OOCEA to fund projects in its five-year plan.
At the time of sale, the bonds were rated in the single-A category by all three major rating agencies.
On the bonds not held by Citi, trading has been sparse and near par levels, according to the online Electornic Municipal Market Access system.
The last trade was Oct. 17 when a customer sold a block of $25,000 of bonds for 99.8 cents on the dollar to yield 5.01%.
Before that on the same day, a customer bought a block of $25,000 of bonds at 103.4 cents to yield 4.3%.
