WASHINGTON — The District of Columbia will price $320 million of income tax-secured tax-exempt bonds next week to refund three previous debt issues, district officials said.
The income tax-secured revenue refunding bonds, Series 2012A, will be priced in a negotiated sale on May 2 and 3, with the first day to be retail-only. The bonds will mature between Dec. 1, 2012 and Dec. 1 2027.
Barclays Capital will be the lead underwriter on the deal. Samuel A. Ramirez & Co. and RBC Capital Markets will be co-underwriters.
The proceeds will be used to refund three previous general obligation bond series issued over the past decade, according to the Marcy Edwards, senior financial policy advisor in the district’s Office of the Chief Financial Officer. Those previous issues include a 2002 series maturing in 2013-2014, a 2004 series maturing during 2017-2027, and a 2005 series maturing in 2018-2028.
The district’s income tax-backed securities are secured only by the district’s income tax revenues, and not by its general taxing power. The district is not permitted to collect income taxes from nonresidents, putting about two-thirds of those taxes out of its reach, according to district officials.
Despite this, the income tax bonds have been a valuable tool, according to district officials. They are primarily used to create capital projects as well as for refundings. Officials said the district has saved over $100 million by refunding outstanding debt with income tax-backed bonds since these kinds of bonds were first authorized in 2009.
District officials expect a considerable present-value savings on the deal. While municipalities, including the district, generally aim to achieve at least 3% savings on a refunding issue, Edwards said the district expects to do much better, getting “in excess of 8%.”
The bonds have not yet received ratings, but the CFO’s office has requested ratings from all three rating agencies. Though the district is on negative outlook from the agencies because of its close economic ties to the cash-strapped federal government, previous income tax-backed bond issues have received stable outlooks. That’s because income tax-backed bondholders have a statutory first lien on income and business taxes in the district, superseding GO bondholders.
Though the CFO’s office declined to speculate about what the agencies might do, an official did say that analysts have not requested much information. The district issued more than $400 million of the bonds in December. With this pricing, there will be about $3.2 billion of outstanding district income tax-secured bonds.
The bond transaction is expected to close on May 16.
