BRADENTON, Fla. - In the first bond pool approved by the U.S. Department of Housing andUrban Development, 37 Alabama housing authorities will sell $123.7 million of capitalprogram revenue bonds securitized with future HUD capital fund grants in a competitive saletomorrow.
The bonds, to be sold in two series under the name Alabama Housing Authorities, will beinsured by Financial Security Assurance.
| Lewin |
The deal is unique because each housing authority is only liable for its proportionate shareof debt service instead of being cross-collateralized in a traditional pool structure, saysMatt Lewin, who is with Chapman & Cutler, the transaction's disclosure counsel.The Alabama deal paves the way for small housing agencies to gain access to the bond marketthey may never have had before, according to housing officials and Lewin, who worked on theChicago Housing Authority's $291 million deal in 2001, the first deal securitizing federalpublic housing capital fund grants.
"This really isn't a different legal structure from an investor's standpoint since we usedthe same securitization structure as Chicago's," Lewin said. "Bondholders don't need tofocus on the authorities' financial performance, they need to focus on the receipt ofcapital funds money from HUD over time."
The $12.1 million of capital program revenue bonds, Series 2003A with 10-year maturities, isbeing sold by public housing authorities in Huntsville, Northport, Opelika, and Ozark.
The second issue consists of $111.6 million of Series 2003B capital program revenue bondswith 20-year maturities. It is being sold by authorities in Altoona, Anniston, Birmingham,Blountsville, Brewton, Centre, Childersburg, Clanton, Collinsville, Fairfield, Florence,Gadsden, Georgiana, Goodwater, Hartselle, Jasper, Jefferson, Lanett, Leeds, Mobile,Monroeville, Pell City, Phenix City, Phil Campbell, Piedmont, Prattville, Rainsville,Sylacauga, Tarrant, Top of Alabama, Troy, Tuskegee, and Vincent.
Annual capital funds from HUD generally are not enough for small authorities to do largeprojects in any given year, so work is spread out over several years and costs rise, saidPublic Finance Associates' Phil Dotts, whose firm is co financial adviser with Censeo Inc.
The new pool allows small authorities to leverage funds, said Censeo's Doug Turner. "Nowthey can do more renovation to existing housing, lots of units will receive airconditioning, and this will make a different quality of life for people in public housing."
The bonds are senior obligations payable through HUD's capital fund program to construct,modernize, renovate, or rehabilitate public housing developments. For the 21,625 unitsoverseen by the authorities in the Alabama deal, most of the bond proceeds will modernizeand renovate existing developments.
Each authority in the Alabama deal is leveraging approximately 25% of its annualappropriation from HUD, while sharing costs through the pool structure and making the tripto market more cost-effective.
The strong pledge of HUD funds was a major factor in getting ratings very close to thoseachieved by the Chicago Housing Authority two years ago - AA-minus from Fitch Ratings, AAfrom Standard & Poor's, and Aa3 from Moody's Investors Service.
Moody's rated the Alabama Series 2003A bonds Aa2 and the Series 2003B Aa3. Standard & Poor'sgave both series its AA-minus rating. Fitch did not rate the debt.
The new credit structure did mitigate some potential volatility in the financing for theAlabama transaction, analysts said. For example, a reduction in units would have a greatereffect on a small authority's ability to pay debt service than on a large authority, soproperty insurance must be maintained in case of a disaster.
Additional oversight for the Alabama deal will be provided by the nonprofit Public HousingFinance Corp. governed by seven Alabama public housing authorities. The corporation willregularly inspect properties and insure compliance with bond covenants.
"Bond administration and program administration is important for us simply because this hasmultiple housing authorities of varying sizes," said Standard & Poor's analyst JeffreyPrevidi.
Bond counsel on tomorrow's transaction is Miller, Hamilton, Snider & Odom LLC.
