CHICAGO — The Indiana Finance Authority Monday afternoon will begin taking retail orders on $350 million of triple-A rated state revolving fund program refunding bonds, before opening the sale to institutional buyers Wednesday.
The IFA originally planned to refund the debt last November, when it entered the market with $138.9 million of new-money debt for the program, but postponed the sale due to market conditions.
With current interest rates, the authority expects to save around $15 million by refunding the bonds, said Jim McGoff, the IFA’s director of environmental programs. The transaction does not include any restructuring, and features maturities from various bond series issued by the IFA over the last several years.
“We’d actually looked at doing a refunder last November. However, the market drifted away,” McGoff said. “When the market came back in mid- to late December, we put the deal team back together and now all indicators show it will be a strong refunder.”
In a relatively new move, the IFA is aiming for high retail participation. In addition to increasing its marketing toward retail buyers, the finance team has opted to hold a one-and-a-half day retail order period, starting Monday afternoon and continuing through Tuesday.
“In the past, retail has not been a big focus, and not been a big part [of IFA transactions]. But in the new-money deal last November, retail was a focus and it actually took off,” McGoff said.
Retail investors ended up buying about 40% of the new-money bonds, according to Scott Davis, the director of debt management for the IFA.
The increase in retail participation comes in part as buyers are increasingly interested in state revolving fund bonds, which are often rated triple-A, McGoff said.
The upcoming bonds are rated triple-A by all three rating agencies.
Bank of America Merrill Lynch is senior manager on the deal, with Citi as co-senior, and four additional firms on the underwriting team. Ice Miller LLP is bond counsel. Lamont Financial Services Corp. is financial adviser on the IFA’s state revolving fund program.
The authority’s SRF program offers loans to municipalities for wastewater and drinking water projects. Roughly 250 local governments participate in the program. The largest borrower is the Indianapolis Sanitary District, which has more than 20% of the loans outstanding.
The bonds are secured with loan repayments, reserve funds, and other accounts. The program also enjoys significant reserve funds, which are key to preserving its triple-A rating, according to analysts.
The program’s combined reserves total about $670 million, or 37% of the bonds outstanding, according to a recent Moody’s Investors Service report.
The IFA has calculated that 28.3% of loans could default and debt service still be paid. The default tolerance is crucial to the Aaa rating, Moody’s said.
As of Jan. 1, 2010, the authority’s SRF program has $1.8 billion of outstanding bonds.