CHICAGO — Hennepin County is crafting the final pieces of a $200 million borrowing needed to finance a new Minnesota Twins stadium in Minneapolis, with plans to offer two transactions in coming months and a possible Internet sale of “souvenir” bonds marketed to the team’s fans.
“We are looking at all our options,” said Hennepin chief financial officer David Lawless. “We have a need for just under $200 million and have a funding agreement with the Twins so that we have to get this done by the end of June.”
The county is working with its financial adviser, Public Financial Management Inc., on structural issues, including the balance of fixed- and floating-rate issuance, anticipated debt service coverage levels, timing, and the selection of an underwriting team. Dorsey & Whitney LLP is the county’s bond counsel.
Officials anticipate entering the market as soon as early March with a fixed-rate tranche in the range of $100 million to $120 million. In conjunction with that issue, Hennepin might conduct a sale via the Internet of smaller denominations of bonds to give nontraditional retail buyers, who might be fans of the Major League Baseball team, an opportunity to invest in the stadium.
“We have a lot of fans that are excited about the new stadium and this would give them a chance to support the project,” Lawless said.
A final floating-rate issue would sell later in early June to wrap up the overall financing.
The county last May sold $150 million of first-lien sales tax revenue bonds for the ballpark. The deal received high ratings of AAA from Standard & Poor’s, AA-plus from Fitch Ratings, and Aa1 from Moody’s Investors Service. The county’s $350 million of outstanding general obligation bonds carry top marks from all three agencies.
The new stadium bonds are secured solely by a subordinated pledge of revenue generated by the 0.15% sales tax the county began levying early last year to raise the funds that make up the public financing portion of the Twins new $480 million, 40,000-seat open-air ballpark. Minnesota collects the tax and transfers the funds needed for debt service directly to the bond trustee, U.S. Bank NA. The Twins’ franchise is contributing $130 million.
The high ratings reflect both the strength and diversity of the local economy and the solid history of sales tax collections in the county, which previously did not impose a sales tax for its own benefit. The state does, however, levy a sales tax, as does Minneapolis.
One strength of the credit is its reliance on an independent state assessment of sales tax collections and projections. Sales and use taxes in the county have grown at an average clip of 6.4% annually over the last 25 years, according to the state report, with the rate in individual years ranging from a low of 1.1% to a high of 33%. Total collections for 2007 were on target to have raised the expected $27 million, though Lawless said officials had not yet seen final figures for last November and December.
The debt service coverage ratio on the senior-lien bonds is 3.8 times in the early years, falling to below three times by 2033 and then 2.3 times upon final maturity in 2037. Those projections are based on a conservative projection of 1.5% annual growth in sales tax collections through 2011, with no growth after that date.
With such strong ratings and solid coverage levels, Hennepin opted to sell the first deal competitively but plans to use a negotiated sale with the final pieces because of the more complex structural issues involving a subordinated pledge.
The county’s goal is to achieve ratings in the double-A category on the upcoming deals. Officials continue to review five senior manager proposals received last November through a request for proposals process and plan to name a team later this month.
The county didn’t use insurance on its first deal. Given the rating agencies’ ongoing reviews of the industry due to its exposure to subprime mortgages and securities backed by subprime mortgages, Lawless said he is leaning against insurance on the upcoming sales after reviewing some initial prices.
“It just doesn’t seem like it makes sense right now. I’m uncomfortable arranging an insurance policy today, and then when you close there’s some story about the company you picked out there so that investors may not be getting what they thought they were,” he said. “If we sell bonds solely backed by our sales tax credit at least investors know what they are getting.”
The Minnesota Baseball Authority is managing construction of the stadium. The authority will lease the stadium, which will open in 2010, to the team. The team is responsible for the design, construction, and operation of the ballpark and is responsible for any construction cost overruns.
The county and team reached an agreement last fall to buy the eight-acre site that is to house the stadium for $29 million. The county had originally offered about $13 million for the site, but the final price was to be the subject of a trial set for late last year. The team covered the additional funds needed for the agreed price.
The state Legislature in 2006 approved the financing package and gave Hennepin County the ability to levy the tax without voter approval, upsetting opponents of public funding for professional sports stadiums. The vote came after more than a decade of team lobbying for a new stadium.
The team currently shares the Hubert H. Humphrey Metrodome with the National Football League’s Minnesota Vikings and the University of Minnesota Gophers football team. The state also passed legislation in 2006 paving the way for a new football stadium for the university, but deferred action on a Vikings’ stadium.