SAN FRANCISCO - Honolulu is planning to sell Hawaii's first Build America Bonds and its first recovery zone economic development zone bonds in a wastewater revenue bond sale expected the week of Sept. 14.

In all, the Honolulu wastewater department is planning to sell up to $367 million of bonds in a mix of new-money and refunding, senior lien and junior lien, and taxable and tax-exempt.

The deal includes about $100 million in new-money senior-lien bonds. The final par amounts and structure will depend on the final size of the refundings.

"It just depends on whether it comes in the money for us," said Tim Houghton, deputy director at Honolulu's Department of Environmental Services.

Likewise, the final structure will depend on the relationship between BABs and traditional tax-exempts at the time of the sale, he said.

According to the preliminary official statement, the entire senior-lien issuance, sized at $148.9 million, is expected to include $67.6 million of tax-exempt bonds, $51.9 million of Build America Bonds, which will pay taxable interest while the city receives a federal subsidy, and $29.4 million in recovery zone economic development bonds.

RZEDBs, like the BAB program, was authorized in this year's federal stimulus legislation.

The recovery bonds receive a 45% subsidy, compared to 35% for BABs, and unlike those bonds, there is a total issuance cap of $10 million allocated through a formula partly based on relative employment declines in 2008.

Honolulu's City Council voted this month to designate the city's entire RZEDB allocation to the wastewater bond deal. Three other Hawaii counties received a combined $60.6 million in allocations.

The structure outlined in the POS calls for the $67.6 million tax-exempt portion to come in serials from 2010 to 2018, with the BABs coming as 2029 and 2035 term bonds and the RZEDBs as 2039 term bonds.

Merrill Lynch & Co. is managing the deal with Piper Jaffray & Co. on the underwriting team. Orrick, Herrington & Sutcliffe LLP is bond counsel.

Houghton said he expects the city to retain a 10-year call provision for the bonds. However, redemption provisions are not specified in the POS - the dates are left blank - except for the inclusion of an extraordinary "make-whole" provision if BABor RZEDB subsidies are eliminated or reduced in the future.

Fitch Ratings last week revised the outlook on Honolulu wastewater bonds to stable from negative and affirmed its AA-minus rating for senior bonds and A-plus rating for the junior lien.

Standard & Poor's affirmed its AA-minus rating for the senior-lien bonds and A-plus for the juniors, while Moody's Investors Service affirmed its Aa3 and A1 ratings, respectively.

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