Ohio's capital city is set to buy back at par as much as $476 million of Build America Bonds it sold in 2009 and 2010 as sequestration will cut the federal subsidies on the debt's interest costs.
Columbus, with 797,000 residents, is the state's largest metropolis. The city plans to redeem all or a portion of its Build America Bonds at 100 percent of the principal plus accrued interest, according to a May 2 filing on the Municipal Securities Rulemaking Board website.
It would be the biggest such redemption of Build America Bonds because of federal sequestration cuts, according to Tom Weyl, director of muni research at Barclays Capital Inc. in New York.
States and localities sold about $188 billion of Build America Bonds in 2009 and 2010. The debt was created as part of President Barack Obama's stimulus plan. The taxable securities give issuers a 35 percent federal subsidy on interest payments.
U.S. federal spending cuts of $80.1 billion that started March 1 to help balance the federal budget include reducing subsidy payments for Build America securities by 8.7 percent, according to the Internal Revenue Service.
More municipalities will consider redeeming Build America Bonds as bankers, financial advisers and bond counsels "will be looking for these opportunities," said Matt Fabian, a managing director with Concord, Massachusetts-based Municipal Market Advisors. "You'll continue to see this activity."
Paul Rakosky, director of the department of finance and management for Columbus, didn't immediately return an e-mail and voice message seeking comment.
The Columbus move follows localities such as Monona and Horicon, both in Wisconsin, which have also announced plans to buy back the bonds because of the reduced subsidy.
Columbus has top credit grades from the three major credit- rating firms. Columbus Build America Bonds due July 2023 traded today with an average yield of 3.95 percent, according to data compiled by Bloomberg.
The Build America Bonds program expired at the end of 2010. The securities have earned 2.6 percent this year, beating the broader $3.7 trillion municipal market's 1.5 percent gain, according to Bank of America Merrill Lynch data.