WASHINGTON — The District of Columbia expects to issue $81.7 million of federal highway grant anticipation revenue bonds on Wednesday in a deal that was delayed from December at an additional cost to the district of about $2 million.
That’s how much the district would have saved had a portion of the debt been issued under the Build America Bond program, which expired Dec. 31.
The deal is the district’s first Garvee issuance and officials had hoped to sell a portion of the deal as BABs to capture its 35% direct-pay savings.
However, Garvee requirements imposed by the Federal Highway Administration initially flummoxed district officials and their bond-underwriting team.
“The process took longer than expected,” district treasurer Lasana Mack said Monday. “We weren’t clear going in that there was a match also required for the interest amount.”
The bond proceeds will help finance reconstruction of the district’s 11th St. Bridge, which stretches over the Anacostia River. Construction work began in December 2009 and is expected to finish in 2013.
Total project cost is estimated at $304 million and includes general obligation bonds, plus district and federal funds. The district plans to issue $56 million of Garvees between 2012 and 2013 to complete the project.
The bonds are secured by the district’s Title 23 federal highway aid revenues. In 2010, the district received about $150 million in federal highway aid. For this Garvee deal, the FHWA will make debt service payments directly to the bonds’ trustee bank.
The bonds are rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s.
Bryant Miller Olive PC is the bond counsel and Hawkins Delafield & Wood LLP is the disclosure counsel.
Phoenix Capital Partners LLP and Public Resources Advisory Group are the financial advisers.
The underwriting syndicate includes six underwriters: Barclays Capital, Ramirez & Co., Cabrera Capital Markets, JPMorgan, M.R. Beal & Co. and TD Securities LLC.
Part of the trouble with the deal started over the matching payments an issuer needs to make for federal transportation funds.
District officials learned they needed to match Garvee bond interest-payment costs in addition to principal costs.
However, the district could not afford to pledge general fund revenues to match the Garvee deal without counting the $81.7 million issuance against the district 12% debt-to-expenditures cap, according to Mack.
So, the district pledged funds already spent on the bridge project instead.
The district had to fill out an additional application to get this move approved and the delay tipped the deal into the new year.
Mack said he does not expect problems in the district’s next Garvee deals.
All Garvee bonds carry risks. They include the prospect of future reductions in the Highway Trust Fund due to lower gasoline tax revenue and the absence of congressional compensation for such a decline in the Garvee funding source.
The Garvees have a 15-year final maturity and are likely to face three reauthorization periods over their lifetime, according to Moody’s.