WASHINGTON — The District of Columbia on Tuesday expects to issue $711.2 million of income-tax secured revenue bonds, including $696 million of refunding bonds that will reduce outstanding debt to keep the city under its 12% debt-to-expenditures cap.
Last month, district chief financial officer Natwar Gandhi told District Council members that the government has no additional debt capacity.
The refunding deal will allow it to fund capital projects that are already appropriated, he said.
The bonds will be offered to retail investors on Tuesday and to institutional investors on Wednesday. They are rated AAA by Standard & Poor’s, Aa2 by Moody’s Investors Service, and AA by Fitch Ratings.
The tax-exempt refunding bonds are expected to mature in seven to 21 years. The $15.2 million of Series 2010B taxable bonds are expected to mature in 2017.
The refunding deal also will smooth out the district’s debt-service payments for fiscal 2012 through 2014, said Marcy Edwards, senior financial policy adviser in Gandi’s office.
It will not extend the final maturities of the bonds, but will push into later years some of the principal payments that would have come due between 2012 and 2014, said Nicholas Samuels, Moody’s lead analyst on the district.
Some of the bond proceeds will be used to terminate interest-rate swaps associated with variable-rate debt issued in 2001 through 2008, officials said.
The district has been stung by declining revenue amid the economic recession and, like many municipalities nationally, has had to cut spending to balance budgets.
Gandhi reported last week that fiscal 2010 tax revenue is expected to decline by $17.7 million to $5.16 billion from the December estimate.
Projections for income taxes, which support the income-tax secured revenue bonds, were revised higher for fiscal 2010 in February.
To compensate for declining revenue, the city needs to close a $167 million fiscal 2010 mid-year gap and faces a $104 million deficit for fiscal 2011, according to a Feb. 25 report from the Center on Budget and Policy Priorities.
As expenditures are reined in to balance the budget, the district has been getting close to its 12% debt-to-expenditures cap that was passed in 2008. The debt cap helped the district secure higher ratings for income-tax secured bonds than for general obligation bonds.
In December, the district sold income-tax revenue bonds as Build America Bonds and achieved the lowest long-term interest rate in its history.
Goldman, Sachs & Co. is the lead underwriter. Orrick, Herrington and Sutcliffe LLP is bond counsel. The underwriters are represented by Hogan & Hartson LLP and McKenzie & Associates. Hawkins Delafield & Wood LLP is disclosure counsel. Phoenix Capital Partners LLP and Public Resources Advisory Group Inc. are financial advisers.
The district expects in early April to issue about $127 million of variable-rate refunding bonds. After that, the district will have about $2.56 billion of senior bonds outstanding.