CHICAGO — The Indiana Bond Bank will offer a pooled financing program to school districts across the state interested in issuing taxable qualified school construction bonds authorized under the American Recovery and Reinvestment Act.
Indiana received an allocation of $177 million in QSCBs for school corporations and $31 million for Indianapolis Public Schools, one of the largest districts in the country. The Bond Bank will sell its first tranche of the QSCBs later this year — tapping up to $77 million of the state authorization — and will distribute it in issues of $2 million or less to districts. The remaining $100 million will be issued in 2010 and distributed in pieces of $10 million or less.
The IPS district is still deciding whether to issue through the pooled program, so the size of the Bond Bank’s first transaction could increase. The amount of QSCBs available for Indianapolis Public Schools next year is to be determined.
Pooling the bonds together will attract more buyers in the market, lower the costs of issuance for the school districts, and allow them to take advantage of the state aid intercept program, according to Bond Bank executive director Dan Huge. With the intercept program, most bonds will carry ratings of AA-plus based on Indiana’s AAA rating from Standard & Poor’s.
The pooled financing program, which the Bond Bank’s board approved unanimously yesterday, will be modeled after a similar program the bank ran from 2001 through 2006 under which school districts issued pooled pension obligation bonds. The Bond Bank issued roughly $1.1 billion on behalf of 200 districts under that program, Huge said. Indiana has 292 school districts.
The Bond Bank will use the same finance team as the one on the pension bonds pooled program. City Securities Corp. will serve as lead underwriter and Ice Miller LLP will act as bond counsel. Crowe Horwath LLP will be financial adviser. The state will select the co-managers over the next few months.
One of the main benefits to participating school districts is sharing the costs of issuance, according to Huge. Under the ARRA program, only 2% of the proceeds may be used to cover issuing costs — capping issuance costs at $40,000 for a $2 million issue, for example.
“We’re going to make sure that schools remain below that 2% cap, or they’ll be forced to venture elsewhere to cover the costs of issuance, either in their capital improvement [fund] or general fund,” Huge said. “With the bond bank’s economy of scale, we’re hopeful schools won’t have to worry about that.”
The Bond Bank plans to enter the market in late September or early October with its first set of QSCBs, he said.
Like other potential QSCB issuers, the Bond Bank is still waiting for additional guidance from the Treasury Department on how to strip the bonds’ tax credits in the secondary market.
“It will be helpful to get information from Treasury sooner rather than later so we can decide the best way to market these bonds,” Huge said.
The Bond Bank has a history of offering pooled financing programs, including a water and sewer system debt program.