Indiana refunding will shed variable-rate risk on stadium bonds
The Indiana Finance Authority plans to shed some variable-rate risk and bank exposure in its Lucas Oil Stadium and convention center debt portfolio by swapping out to fixed-rate structure with a $78 million refunding selling Thursday.
Thursday’s bond sale will refund IFA variable-rate lease appropriation convention center expansion project bonds issued in 2008. The refunding will allow the state to switch to fixed-rate bonds in a favorable interest-rate environment, said Stephanie McFarland, a spokeswoman for the IFA.
“The bonds are currently unhedged," McFarland said. “[The IFA] is refunding to fix debt service and to add budget certainty, as well as reduce interest-rate risk,” McFarland said. “The refunding reduces risk of liquidity product availability/pricing for remainder of term of the bonds.”
McFarland said that the timing of the deal considers the interest rate environment of low yields and a flat yield curve, and is favorable to fix out longer dated maturities.
Separately, the authority plans to remarket Series 2005 A-1 bonds to shift the bonds from a direct placement to variable-rate bonds supported with a standby bond purchase agreement. The IFA plans to price the remarketing in the first week of December.
To pay for stadium construction, the IFA issued $666 million in bonds between 2005 and 2008. The stadium, home of the National Football League’s Indianapolis Colts, and the convention center are located in downtown Indianapolis.
Bank of America Securities is the lead manager on the transactions. KeyBanc Capital Markets, Ramirez & Co., Inc. and UBS are co-managers. PFM is advising the IFA. Barnes & Thornburg LLP is bond counsel.
The bonds are secured by local revenue streams, including the Marion County hotel, car rental and admission taxes, and a regional tax on food and beverage sales. Under the various lease and sublease agreements for the bonds, the state's Office of Management and Budget is obligated to make up any shortfall in local tax revenues with general fund appropriations.
“Dedicated local tax revenues intended for bond repayment have been sufficient to pay debt service since issuance, and the state expects state general fund revenues will not be needed,” Fitch Ratings wrote as it affirmed its AA-plus rating on the debt. S&P Global Ratings rates the debt AA-plus and Moody’s Investors Service rates it bonds Aa2. Outlooks are stable.
If local revenues are not enough, the IFA said in the investor presentation that it has over $72 million in reserves available that would be sufficient to cover repayments.
In affirming its rating that took into account the state’s credit, Fitch noted the state’s low long-term liability burden and exceptionally strong operating profile including a commitment to ongoing structural budget balance and rapid restoration of fiscal flexibility in times of economic expansion.
The state's enacted 2020-2021 biennial general fund budget totals $34.59 billion.