BRADENTON, Fla. - The Alabama Public School and College Authority tomorrow plans to competitively sell $324.4 million of refunding and new capital improvement bonds.
Proceeds of the $284.8 million of Series 2009A bonds will be used to current refund the APSCA's outstanding Series 1998 bonds while proceeds of the $39.6 million Series 2009B bonds will be used to provide capital improvement loans to 10 local boards of education.
The Series A bonds are expected to have maturities between 2011 and 2019, and are not subject to redemption prior to maturity. The Series B bonds are expected to have maturities between 2010 and 2029, and bonds may be redeemed at the option of the authority on May 1, 2019 and any date thereafter.
The refunding bonds are being sold for debt service savings without extending the original year of final maturity, said Phil Dotts, president of Public FA Inc., the authority's financial adviser.
The state requires a minimum threshold of 3% savings for a refunding but expects a higher percentage at sale time, Dotts said, adding that savings in the range of $12 million to $15 million are anticipated depending on market conditions. The "plain vanilla" new-money bonds are structured for level debt savings over their 20-year life.
Despite market difficulties in the recent past that saw a number of issuers switch to negotiated sales, Dotts said Alabama officials maintained their policy of using a competitive sale method.
"We're expecting a good, healthy level of [investor] interest," Dotts said. "We tried to be, as always, proactive in talking to some potential bidders...and we had surveyed the market on occasion to see what kind of bid interest we're going to have."
The bonds are rated Aa2 with a stable outlook by Moody's Investors Service and AA with a negative outlook by Standard & Poor's. Both agencies affirmed their respective ratings on the authority's outstanding debt, which will be approximately $2.35 billion after Thursday's sale, according to Standard & Poor's. The authority's bonds are not rated by Fitch Ratings.
Standard & Poor's said its negative outlook reflects what it views as the continued uncertainty surrounding a federal court case connected with a dispute between the authority and JPMorgan Chase Bank involving various swap options, or swaptions, entered into in 2002 and amended in 2003.
"Because the court's ruling could potentially require the authority to make certain payments under the swap contracts, the decision might, in our view, reduce the authority's flexibility to maintain what we consider its historically strong monthly coverage levels and liquidity," said a report by Standard & Poor's analyst Sussan Corson. "Should officials fail to manage additional obligations to maintain good combined coverage levels and liquidity in all months, we could lower the rating."
The APSCA last October filed a complaint in federal court asking a judge to void a swaption with JPMorgan questioning the validity of the original transaction under Alabama law.
The dispute centers around swaption agreements in connection with APSCA's Series 1998, 1999A, 1999C, and 1999D bonds. Last year, JPMorgan exercised its option on the 1998 bonds, which would have required the authority to issue variable-rate refunding bonds by Nov. 1. The authority said due to market conditions it could not feasibly issue variable-rate debt and questioned the legality of the swap agreements. The judge overseeing the lawsuit has yet to schedule a hearing in the case.
Bond documents for tomorrow's sale include a lengthy disclosure statement about the swap issue.
Dotts hoped it would not impact the outcome of the sale and he encouraged investors to read both rating reports and consider the APSCA's strong double-A ratings.
"I think in the overall scheme of things that will not have that big an impact on the creditworthiness of the state and particularly the Public School and College Authority, which is one of the major issuers of debt in Alabama," Dotts said, referring to any payments the state might make related to termination fees for the swaptions.
Balch & Bingham LLP is the authority's bond counsel.