The Essex County Improvement Authority is looking for underwriters for an $89 million real-estate lease-back bond deal with Newark that will help New Jersey’s largest city balance its fiscal 2010 budget.
Responses to the authority’s request for proposals are due on Thursday. Officials aim to sell the bonds in late November.
The authority will sell up to $89 million of bonds and use those proceeds to purchase up to 17 properties from Newark, according to the RFP. The city will make lease payments to the authority that will pay down the bonds.
Newark, whose fiscal year ends Dec. 31, will use about $40 million from the property sales to help balance its fiscal 2010 budget. Its fiscal year ends Dec. 31.
The city’s deficit is $83 million. The $40 million from the lease-back plan will help plug that budget gap, along with a 16% increase in property taxes and the elimination of 850 city government positions.
Newark’s Municipal Council approved the fiscal 2010 budget on Thursday.
Officials anticipate the $89 million bond transaction will have two series. Series 2010A bonds will help finance renovations on Newark buildings purchased by the authority and also pay down any outstanding debt tied to the properties, according to the RFP.
The Series 2010A bonds will not be subject to New Jersey’s 2% property-tax cap. In 2011, local governments will not be able to raise property taxes by more than two percentage points, except for debt-service requirements and pension and health care costs.
The Series 2010A bonds may include a subseries of bonds that will advance refund previous debt. The bonds could be subject to federal tax.
The Series 2010B bonds will finance the authority’s purchase of up to 17 Newark properties. Those bonds will be subject to the state’s 2% property-tax ceiling, according to the RFP.
“The city’s lease payments under the lease for the Series 2010B bonds will need to be paid within the limitations of the 2% tax cap levy,” the RFP reads.
Newark’s lease payments to the authority will be equal to the principal and interest payments on the bonds. The city may use property taxes or other revenue sources to meet its lease payments to the authority.
The authority is looking for banks with New Jersey experience and prior work with “challenged credits and unique credit structures.”
“The underwriter shall be selected based on an evaluation of the responses of the most advantageous technical proposal to help the authority achieve its goal of achieving the lowest cost of borrowing,” the RFP reads.
Interested firms must provide a structuring and marketing plan that includes issuing the bonds through a public offering or a private placement, potential investors, and spreads to Municipal Market Data based on three different credit ratings. Those ratings are A2 with a negative outlook, Baa1, and unrated.
Moody’s Investors Service rates Newark’s $500 million of outstanding debt A2 with a negative outlook. In mid-August, it placed the city on credit review for possible downgrade.