At least five issuers in Minnesota and Illinois recently disclosed that they may redeem a total of $128.44 million of Build America Bonds because sequestration-imposed cuts in the federal subsidy payments they receive triggered the extraordinary redemption provisions in their bond documents.
However, the North Carolina Turnpike Authority indicated the cuts in subsidy payments will not cause it to redeem $352.67 million of Series 2009B Triangle Expressway state appropriation revenue BABs and $233.92 million of Series 2010A Monroe Connector state appropriation revenue BABs.
In an Aug. 5 event notice filed on the Municipal Securities Rulemaking Board's EMMA website, the authority said it will have sufficient funds to cover debt service on the bonds for nine or 10 years, if the sequestration cuts of $600,000 per year for the TriEx bonds and $327,000 per year for the Monroe bonds continue. The authority may find it too costly to redeem the bonds under a "make-whole" extraordinary optional redemption provision in the official statement designed to prevent bondholders from losing any money.
Some of the five issuers who may redeem their BABs after the extraordinary redemption provisions were triggered by the sequestration-imposed subsidy cuts, have the same underwriters, bond counsel or financial advisors.
The largest issue was $56.19 million of Series 2010A BABs issued by Springfield School District No. 186 in Sangamon County, Ill. to finance school building improvements.
In an event notice filed Aug. 7 with EMMA, the district said the Internal Revenue Service on June 25 told it that its Aug. 1 subsidy payment would be reduced by 8.7%.
"The district used other funds to pay the interest due on Aug. 1, 2013 in full with no interest payment delinquency," the notice said.
The district said the cut triggers the extraordinary optional redemption provision in the official statement for the BABs, which states that an extraordinary event occurs if "any related [Internal Revenue] Code is repealed, amended or modified which results in a reduction or elimination of the cause subsidy payment from the U.S. Treasury" or if the "Treasury fails to make a cash subsidy payment to which the district is entitled and such failure is not caused by an action or inaction by the district."
The district plans to redeem the bonds in accordance with the redemption provisions "subject to market conditions," the notice said
The bonds were underwritten Robert W. Baird & Co. and Stifel, Nicolaus & Co. The bond and disclosure counsel was Hart, Southworth & Witsman. The financial advisor was PMA Securities, Inc.
The next largest issue is $52.89 million of 2010C Build America Bonds that Independent School District No. 2142 in St. Louis County, Minn. to improve and build schools.
The district said the Treasury Dept. reduced its Aug. 1 subsidy payment by 8.7%, but that it used other funds to make its debt service payment so that there was no payment delinquency. The cut triggered the extraordinary redemption language in the OS, which contained the same language as the Springfield School District's BABs OS.
"As of the date of this notice, the governing body of the issuer has not taken action to authorize the redemption of the obligations," Independent School District said.
The bonds were underwritten by a syndicate led by Morgan Keegan & Co., which has since merged with Raymond James. The financial advisor was Ehlers & Associates and the bond counsel was Knutson, Flynn & Deans.
St. Louis County, Minn. said, in an Aug. 7 event notice filed on EMMA, that it plans to redeem $7.14 million of Series 2010A bonds on Oct. 15. The county said its June 1 subsidy payment was reduced by 8.7% to $31,666.60 from $34,684.12, but that it made the interest payment with other fund and without delinquency.
The BABS "are subject to extraordinary redemption in whole ... at a redemption price equal to par plus accrued interest to the redemption date, upon or on any date after the occurrence of a determination of ineligibility," the county said in its notice. A determination of ineligibility occurs if, among other things, the federal government reduces the subsidy payment, it said.
The bonds were underwritten by a syndicate led by Robert W. Baird. The financial advisor was Springsted Inc., The bond counsel was Fryberger, Buchanan, Smith & Frederick, P.A.
Edina, Minn. said in an Aug. 5 event notice filed on EMMA that the 8.7% cut in its Aug. 1 subsidy payment for $6.13 million of Series 2010B BABs triggered the extraordinary redemption provision, which had the same language as the two school districts in Illinois and Minnesota.
"As of the date of this notice, the governing body of the issuer has not taken any action to authorize the redemption of the obligations," the city said in the event notice.
The BABs were underwritten by a syndicate led by Robert W. Baird. The FA was Ehlers and the bond counsel was Dorsey & Whitney LLP.
East Bethel, Minn. announced in an Aug. 5 event notice on EMMA that it could redeem $6.1 million of Series 2010B BABs at any time because an 8.7% cut in its Aug. 1 subsidy payment triggered a "determination of ineligibility" in its extraordinary redemption provision.
The city said its governing body has not taken action to authorize the redemption and that the BABs are expected to be refunded in September.
The BABs were underwritten by a syndicate led by Robert W. Baird. The financial advisor was Springsted and the bond counsel was Dorsey & Whitney.