SAN FRANCISCO — The Idaho Housing and Finance Association is trying to buy out holders of outstanding bonds in a bid to take advantage of federal stimulus legislation that permits the agency to issue housing bonds without interest being subject to the federal alternative minimum tax.
The tender offer — available at
The state’s housing finance agency is going the tender route to take advantage of a provision allowing issuers of private-activity bonds to refund, on a non-AMT basis, bonds issued in 2004 and afterward that were subject to AMT.
While an attractive proposition for the issuers, it’s a complicated one: because private-activity bonds cannot be advance refunded, issuers of fixed-rate bonds with the typical 10-year call protection appear out of luck. The tender offer is a way around that conundrum.
“Some other issuers are watching this closely to see what kind of success we have,” Sager said.
Once the tender period is complete, the association will issue new, AMT-free bonds to refund the debt, he said, adding that he doesn’t expect all the bonds to be tendered.
“We’re not going to get them all,” he said. “We’re expecting a little better participation among the institutional investors than individual investors, but were hoping to get a reasonable percentage.”
He estimated that about 60% of the outstanding bonds are in institutional hands.
“We need to cover some costs, but we’re in our comfort zone,” Sager said. “We feel comfortable we’ll get enough to make it worthwhile.”
Barclays Capital is the dealer manager for the offer, and underwriter of the refunding bonds. Orrick, Herrington & Sutcliffe LLC and Skinner Fawcett are bond counsel.
The tender process is described as a modified Dutch auction.
“We’re letting people take the [Municipal Market Data] index for triple-A GO, for a like maturity they can specify a market spread between one and 225 basis points,” Sager said. “We would determine the price and if that’s an acceptable level for us and buy the bonds. Or they can take the clearing price for the market.”
He said the tender offer meets bondholders’ interests by allowing them to specify a price better than the current market price, and providing liquidity for AMT bonds that’s lacking in the market right now.
The final deadline on the tender offer was originally today, but on Monday it was extended to June 12.
“We were a little later than expected in getting out our July 1 redemption and call notices,” Sager said. “We didn’t feel we gave enough time to investors; we wanted to give them more time to evaluate the offer.”
