Alabama City Is in The Hunt

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BRADENTON, Fla. — Gilt-edged Huntsville in northern Alabama plans to price $174 million of new-money and refunding general obligation capital improvement warrants on Wednesday.

Of $88 million in new-money proceeds, $25 million is for school capital projects while the remainder will fund various capital improvements in the city, including sewer improvements for a $1 billion multi-use development supporting the U.S. Army’s Redstone Arsenal.

The deal is selling in four series: $91 million of 2010A tax-exempt GO new and refunding warrants, $62.55 million of 2010B GO warrants, $7.5 million of 2010C taxable GO recovery zone economic development warrants, and $11.71 million of 2010D taxable GO warrants.

The 2010B bonds may be sold as tax-exempt warrants or taxable Build America Bonds, according to bond documents. All but one series is expected to have serial maturities.

The 2010A warrants mature between 2011 and 2037, the 2010B warrants mature from 2011 to 2030, and the 2010D warrants mature from 2011 to 2027. The 2010C RZED warrants have term maturities in 2031 and 2032.

Approximately $75 million of the 2010A bonds will refund existing debt in seven separate series with present-value savings ranging from 4.5% to 11%.

The refunding is for debt service ­savings within existing maturities, according to Huntsville finance director Randy Taylor.

Huntsville is an infrequent issuer and its next planned venture into the bond market is in 2012.

“On pricing, we’re optimistic that we’re going to be very competitive,” Taylor said.

The warrants are rated triple-A by Moody’s Investors Service and ­Standard & Poor’s.

Moody’s upgraded the city’s GO rating to Aaa from Aa1 in its May 1 municipal rating recalibrations.

Though the Huntsville area has been affected by the recession, the local impact has been moderated by research and development, primarily from military and government operations, as well as related business expansion, analysts said.

Just over half of the revenues supporting the city’s general fund come from sales tax collections, which increased “for 30 straight years through fiscal 2008,” a report by Moody’s analyst Christopher Coviello said.

But sales tax revenues declined 4.2% in fiscal 2009 and city officials have drawn on the fund balance the last two fiscal years. Reserves were at $43.89 million, or 20.2% of revenues, in fiscal 2009.

“Moody’s expects that Huntsville’s financial position will remain stable given prudent fiscal management and satisfactory reserve levels,” Coviello said.

The city recognized early in 2009 that sales tax revenues were falling far below the budgeted levels and enacted expenditure controls, including a four-year hiring freeze, said a report by Standard & Poor’s analyst Edward McGlade.

Each department has been asked to submit a budget that is 10% less than the previous year to further control expenditures, he said.

Huntsville, with a population of 180,000, has experienced steady business growth particularly from the military, aerospace, and high-tech industries.

The unemployment rate was 8% in June compared to 10.3% for the state, ­according to the Bureau of Labor ­Statistics.

Of the current offering, $4 million is for sewer system improvements for Redstone Gateway — a 468-acre mixed-use development and office park.

Groundbreaking was Monday for the project, which is being built in three phases over a number of years. It will total 4.6 million square feet of office, retail, and hotel space at completion.

The project is serving the influx of nearly 5,000 new federal positions and associated businesses moving to the area as a result of the military’s 2005 Base Realignment and Closure program.

The new positions, mostly civilian, are going to Redstone Arsenal, home of the U.S. Army Aviation and Missile Command and the NASA Marshall Space Flight Center.

The land on which Gateway sits is adjacent to Redstone Arsenal and owned by the federal government. Through the government’s enhanced use lease program, the land has been leased to LW Redstone, a partnership between Maryland-based Corporate Office Properties Trust and Montgomery-based Jim Wilson & Associates.

Over the summer, the land was annexed into the city limits so that Huntsville could create a tax-increment finance district to pay for $76 million in infrastructure improvements that will be done by the city in concert with the three phases of building development.

he developer will pay property taxes on the project, not the land.

To do the improvements, Huntsville is borrowing funds from the developer and plans to sell TIF bonds only when enough revenues are available for long-term financing, according to Taylor.

“The purpose of that, in the agreement, is to eliminate at the onset the risk of the developer fulfilling its commitment to building the project,” he said.

The city has already privately placed $10 million of warrants with the developer to fund the first phase of infrastructure costs for design, utility work, and project management.

The privately placed warrants are non-recourse so if the project does not create enough TIF revenues, the warrants will not be redeemed and the developer will not be repaid.

The structure helps protect the city from the volatile real estate market, ­Taylor said.

“That’s one of the successes of this project,” he said.

The book-runner for next week’s offering is Morgan Keegan & Co. Other underwriters are Joe Jolly & Co., Morgan Stanley, Raymond James & Associates Inc., and Securities Capital Corp.

Public FA Inc. is financial adviser. Bradley Arant Boult Cummings LLP is bond counsel.

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