CHICAGO – A Southwestern Illinois flood prevention agency wrapped up borrowing this week to support its efforts to offer protection form a so-called 500-year-flood on the American Bottom levee system.
The Southwestern Illinois Flood Prevention District Council sold $51 million of subordinate Local Government Program Revenue Bonds through the Southwestern Illinois Development Authority on Dec. 9. The levee system protects a region in southwestern Illinois known as the American Bottom, the flood plain of the Mississippi River that extends from Alton south to the Kaskaskia River.
The deal marked the first issue under a subordinate lien and carried an A3 from Moody's Investors Service and an A from Standard & Poor's. The district on Dec. 3 priced $26 million of senior lien bonds that carry Aa3 and AA ratings, respectively.
RBC Capital Markets was lead manager on the junior lien bonds and PNC Capital Markets led the senior lien. Columbia Capital Management LLC advised the council.
The sale offered rare Illinois paper in which interest was exempt from both state and federal taxes. Most Illinois paper does not enjoy a state income tax exemption. The agency will have $111 million of outstanding senior lien bonds and $51 million of subordinate after the sale and has no additional borrowing plans.
The bonds are secured by a sales tax levied in a three county region of Madison, St. Claire, and Monroe Counties. In an investor presentation the finance team highlighted the credit's strengths that include no "exposure to the state of Illinois" and a lockbox on sales tax collections that flow from the state to the trustee without the need for appropriation, said RBC banker Kevin Hoecker.
They also highlighted that taxable debt issued in 2010 benefits from Federal Recovery Zone Economic Development and Build America Bond subsidies help repay the debt, enhancing coverage from the sales tax.
The council was established in 2009 to oversee the financing and construction of levee improvements after federal authorities determined in 2007 that the current system was unlikely to meet the 100-year flood plain requirements.
"The potential impact for property owners in the American Bottom if the levees were not accredited was projected to total $50 million in increased insurance premiums, in addition to very restrictive changes in local building regulations and decreased property values," Chuck Etwert, chief supervisor of construction at the council, said during the presentation. The council expects to meet those standards by next August.
The council is now going further as the new bond sale will "fund needed repairs to bring the levee system in southwestern Illinois to its original 500-year level protection," officials said. The council's share of the project is $102 million with cash on hand and tax revenues supplementing the bond proceeds.
Moody's said its rating are supported by the large economic base from which the sales tax is generated; satisfactory debt service coverage; strong legal provisions that include direct transfer of sales taxes from the state of Illinois; and manageable debt with no future borrowing plans.
Projected collections of the dedicated 0.25% sales tax for a twelve-month period through August 2015 indicate that sales tax receipts will post a second consecutive year of modest growth. The tax is to be collected for 25 years or until all debt is repaid. Maximum annual debt service coverage is 1.4 times on the senior lien debt and .95 times on the junior, rising to 1.4 times, and 1 times when federal subsidies are added.
"We expect the council's local economy will remain stable due to its favorable location within the St. Louis metro area, with access to major transportation routes," Moody's said.
