Gary Mayor Karen Freeman Wilson

CHICAGO — Gary, Ind., a rare issuer and the state's most distressed city, is expected to come to market this week with $15.3 million of unrated, casino revenue-backed bonds.

The deal is being sold through the Hammond Bond Bank, a move that allows Gary to sell the bonds in a negotiated sale. Indiana state law requires public works debt to be sold competitively unless issued through a conduit.

The city is tapping its gaming revenue, one of its most reliable revenue streams, for debt payments.

It plans to use the proceeds to roll over short-term notes it issued last year to pay judgments and medical claims against the city, pay debts owed to utilities, pay off deficits and finance certain capital improvements. Gary Mayor Karen Freeman-Wilson last year told the Bond Buyer the city hoped to roll the debt over in 2015 and snag the city's first credit rating in years at the same time. But the city has not requested any ratings on the upcoming deal.

Gary is located in northwest Indiana just outside Chicago. The Steel City suffers from high unemployment and a steep drop in population and businesses since the 1970s when it was a manufacturing hub for the U.S. Steel Corp. One of the city's biggest challenges is tied to a drop in property tax revenue as part of sweeping property tax reform enacted in 2009.

The deal comes as Indiana Legislature is considering a bill that could bring some changes to the local gaming industry in Gary. House Bill 1540 would allow riverboats to move inland under certain conditions, among other things. The measure also urges the legislative council to assign a committee to study the use of gaming revenue as a source of funding for local governments, according to the bill's summary.

That legislation is listed along with other possible legislative and economic changes as investor considerations in the preliminary bond documents.

Two riverboat casinos are docked off the city, and it collects a piece of admissions and gaming taxes the state collects from the casinos. Preliminary bond documents estimate debt service coverage at just under five times based on recent revenue collections.

Under state law, Gary receives 25% of wagering tax revenue after the first $33 million has been collected. The state in 2014 collected $40.6 million from the two Gary-based riverboats, down from a high of $68 million in 2008, according to bond documents. The city collected $11.1 million in 2014, and projects the same amount in 2015.

Siebert Brandford Shank & Co. LLC, which ran the city's note deal last year, is the underwriter.

Hardwick Law Firm LLC and Shanahan & Shanahan LLP are co-bond counsel. Cender & Company is financial advisor to the Hammond Bond Bank. Indianapolis-based Crowe Horwath LLP and Gary-based Whittaker & Company PLLC are the city's financial advisors.

The city also hopes to win a $5.4 million federal loan in 2015 for various capital projects that will also be payable from gaming revenues, tax increment financing revenues and other sources. The city is also considering refinancing a chunk of its TIF debt, according to bond documents.

Gary carries very little debt, besides $8 million of outstanding debt, some of which was floated for a $45 million baseball stadium. It has no pension or other post-employment benefit obligation debt, both of which are the state's responsibility.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.