Franklin County, Ohio, deal buoyed by two triple-A ratings
Franklin County, Ohio, heads into the market Wednesday with $250 million of tax-exempt, local government special tax revenue bonds that carry the distinction of two triple-A ratings.
The bonds – Franklin County’s first sales tax revenue bond issue – will be used to complete the second phase of its new $450 million corrections facility and to make physical improvements or repairs to other county buildings.
Moody’s Investors Service and S&P Global Ratings assigned the bonds Aaa and AAA ratings respectively. The outlook for both is stable. At the same time, the rating agencies both also reaffirmed their triple-A ratings of the county’s outstanding general obligation bonds.
Moody’s highlighted the bonds’ structure and the county’s strong financial history, large and growing tax base, and the presence of Ohio State University and the state government.
Columbus is the county seat.
S&P Global Ratings specifically noted the bonds’ strong legal provision and the county’s stable sales and use tax stream, as well as the deep and diverse regional economy.
The county says it’s the first bond of this kind to earn the top ratings from two credit rating agencies and expects it will garner strong investor demand.
“We expect to see strong demand for the bonds since this is the first local government special tax revenue bond issue rated triple A by both Moody’s and S&P,” said Marty Homan, a spokesman for the county’s board of commissioners. “Hopefully, that demand will translate into tight spreads and favorable interest rates for the County.”
In December Franklin County adopted the permanent extension of a 0.25% sales tax that was due to expire next year. The quarter-cent rate generates approximately $60 million per year. The first $200 million for the jail project was completed with cash generated from the sales tax.
Franklin County Administrator Kenneth Wilson said that the county needed to put the continuation of the sales tax in place mainly because of the impact of the state decision to no longer allow sales tax to be charged for Medicaid services.
“That reduction put a $21 million hole in our budget that we hadn’t anticipated at the time,” Wilson said. “The sales tax also gives us the ability to bring forward the debt issue to continue building out the county’s correctional facilities.”
The bonds are secured by a first-dollar claim on all county sales tax collections, which are collected by the state and diverted to trustee Huntington National Bank on a monthly basis until 100% of annual principal and interest is funded, and then remitted to the county to fund general operations.
Franklin County Commissioner Kevin Boyce said that the bonds are further secured by the county’s additional capacity to increase the sales tax. “We have a quarter-percent more that we can levy if need be,” Boyce said. “It is not something that we are looking at but we have the capacity.”
The bonds are scheduled to be sold on May 23rd, and will have a final maturity date of June 1, 2048. Bank of America Merrill Lynch will be the lead underwriter on the transaction and Morgan Stanley will be a co-senior manager.
As of Dec. 31, 2017, Franklin County had general obligation bonds outstanding of $242,590,000 and special obligation bonds outstanding of $21,680,000. The county has maintained Triple-A bond ratings on its general obligation bonds since 1993, and is one of only 2% of counties nationwide to have such ratings from both Moody’s and S&P.