WASHINGTON — The Indianapolis Board of School Commissioners has authorized the potential refinancing of $59.6 million of Build America Bonds issued in 2010 because the federal subsidy payments to the issuer have been reduced due to sequestration, and triggered a redemption provision.
The issuer, the IPS Multi-School Building Corp., is expected to redeem the bonds "subject to market conditions," according to an event notice filed this week on the Municipal Securities Rulemaking Board's EMMA System.
The bonds were issued to finance the construction and renovation of Indianapolis Public Schools facilities, the official statement said.
The BAB program allowed issuers in 2009 and 2010 to issue taxable bonds and receive subsidy payments from the Treasury Department equal to 35% of the interest costs. But the payments were reduced by 8.7% for part of fiscal 2013 and are being reduced by 7.2% in fiscal 2014 because of congressionally mandated spending cuts known as sequestration.
The school district's subsidy payments were reduced in July 2013 and January of this year. It used other funds to make the interest payments to investors in full, according to the event notice.
But on March 18, the school board adopted a resolution that authorizes the potential refinancing of the BABs because the extraordinary optional redemption provision for the bonds was triggered. That provision states that the issuer has the option to redeem the bonds at a price of 100% plus interest accrued to the redemption date if the federal government reduces or ends the subsidy payments, according to the event notice.
Baker & Daniels LLP served as bond counsel on the sale. City Securities Corp., Morgan Stanley & Co. Inc., Loop Capital Markets LLC, Andes Capital Group, LLC, and Backstrom McCarley Berry & Co., LLC served as underwriters. The financial advisor was Colette Irwin-Knott, with H.J. Umbaugh & Associates, according to the official statement.