CHICAGO - Cleveland is coming to market this week with $51 million of highly rated transportation capital improvement bonds backed by a countywide sales tax.
The Greater Cleveland Regional Transit Authority is expected to price the bonds Tuesday with Piper Jaffray & Co. as senior manager and The Huntington Investment Company as co-senior.
In addition to a senior lien on the 1% county-wide sales tax, the bonds include a trustee intercept feature and a test that requires two times coverage of existing and planned debt.
All the authority's general obligation bonds are on par with its revenue bonds, with both payable out of the 1% sales and use tax that has been levied in Cuyahoga County since the authority began operation in 1975.
The transit authority serves 1.3 million in the greater Cleveland area. It operates 442 buses, rail service with 18 stations across Cuyahoga County and 18 miles of light rail.
Standard & Poor's rates the bonds AAA.
Moody's Investors Service boosted its rating on the authority to Aa1 from Aa2 last week. The upgrade reflects "ample and growing debt service coverage, even under stressed scenarios, limited future debt plans, consecutive years of robust revenue growth since the recession and strong management of operations," said Moody's. "The rating also reflects sound legal provisions . A trustee intercept of those revenues; and a two times additional bonds test."
Proceeds will be used to finance permanent improvements to the system as well as refund bonds issued in 2008 and outstanding 2007 lease obligations that now total $14.4 million.
A trust agreement with Huntington Bank requires that the Ohio Department of Taxation deposit the sales tax revenue directly into the trust account where it will then be transferred to a bond retirement fund. The bonds carry the authority's full faith and credit, so that if sales tax revenue falls short, it is to tap its other operating revenue to cover the payments.
Debt service coverage for both sales tax-backed and general obligation bonds totaled nearly nine times in 2010 and is expected to rise to 10.4 times in 2015, according to bond documents.
The authority also discloses in bond documents that the Internal Revenue Service is examining $35 million of its 2008 LTGO bonds as part of a "routine examination." The review is part of a "project/initiative involving transportation bonds," the documents say.
"The correspondence further stated that at this time the IRS has no reason to believe that the authority's debt issuance fails to comply with any of the applicable tax requirements."
Public Financial Management Inc. is the authority's financial advisor. Peck, Shaffer & Williams, a division of Dinsmore & Shohl LLP, and Horton & Horton LPA are co-bond counsel.
