CHICAGO - The Indiana Finance Authority sold $216 million of mostly taxable Build America Bonds yesterday to wrap up financing for the expansion of the Indianapolis Convention Center, part of a $1 billion development plan that included construction of a new professional football stadium.

The lease appropriation bonds that carry the state's moral obligation pledge of repayment included a $17.67 million Series A and $191.6 million of taxable Series B bonds being sold under the federal stimulus' BAB program. The IFA will apply for the federal government's direct-pay 35% interest subsidy.

Morgan Stanley served as senior manager. Barnes & Thornburg LLP is bond counsel and Krieg DeVault LLP is underwriters counsel.

The tax-exempt Series A matures serially from 2012 to 2029 and the authority will use proceeds of to help cover termination payments related to three forward-starting swaps previously entered into when officials had planned to use a floating-rate structure.

The BABs mature in a term bond in 2039 with make-whole call provision at Treasuries plus 40 basis points and an extraordinary optional redemption in the event the federal government rescinds the interest subsidy.

The bonds were priced at par to yield 6.60%, or 4.29% after the 35% subsidy. The bonds were priced to yield 220 basis points over the comparable U.S. Treasury yield.

The bonds are a special, limited obligation of the IFA payable from lease rental payments made to the Indiana Stadium and Convention Center Building Authority from the state Office of Management and Budget. The payments are subject to biennial appropriation. Local hotel, car rental, food and beverage taxes, and fees are used to repay the debt.

The new issue's indenture was amended to address potential risks associated with Indiana's receipt of the federal government's 35% BAB interest subsidy.

Lease payments made by the OMB to the building authority are based on debt service, creating risk that if the federal subsidy is not received in a timely manner, rental payments could fall short of the amount needed to cover debt service.

During the construction period, a reserve is funded to cover maximum annual debt service payments, but not after. The supplemental indenture requires that a reserve be maintained after the construction period equal to 35% of the maximum semiannual interest payment, and if tapped, the state pledges its moral obligation to replenish the reserve.

The deal marks the final leg of financing needed to complete the convention center expansion that is part of a $1 billion bond-financed development plan.

When completed late next year, the convention center will boost the facility's space to 1.2 million from 725,000 square feet, raising Indianapolis to a ranking of 16th from 33rd based on convention meeting space nationally. Officials believe the expansion was needed to keep the city competitive in vying for conventions.

The larger overall $1 billion development project included the demolition of the RCA Dome - the former home for the National Football League's Indianapolis Colts - to make way for the convention center expansion and construction of a new stadium that opened last year. With the sale of the new issue, the state will have sold $666 million to fund the stadium project and $320 million for the convention center.

"The combined projects are a high priority for the state, with considerable economic importance to Indianapolis, which is the state's largest city by far, the state capital, and centrally located. Demonstrating the importance of the project to the entire region's economy, six surrounding counties agreed to raise food and beverage taxes for the project," Fitch Ratings wrote.

Ahead of the sale, Fitch affirmed the AA it assigned to the lease appropriation bonds, Moody's Investors Service affirmed its Aa3 and Standard & Poor's affirmed its AA-plus. The ratings reflect Indiana's credit strength and history of timely appropriations for its lease obligations.

The state, which does not issue traditional general obligation bonds, carries issuer credit ratings of Aa1 from Moody's, AAA from Standard & Poor's and AA from Fitch. The state has $3 billion of tax-supported debt.

Like most other states, Indiana is struggling with dwindling revenue collections and growing unemployment that's been particularly bad for its manufacturing and auto-related industries.

State revenue - of which personal income taxes and sales taxes together account for nearly 80% - were revised downward last month, resulting in a new $1 billion budget hole.

The state's percentage of manufacturing employment is the highest in the nation. While grappling with the current decline of the domestic auto industry, the strong presence of foreign makers like Honda, Toyota and Suburu plants helps offset some concerns going forward.

Indiana's credit benefits from conservative management, restrained spending and strong reserves. "Moody's notes the state's proactive approach to balancing its budget and use of structurally balanced solutions so far," analysts wrote.

The deal comes as state lawmakers are working to adopt a balanced budget for the next fiscal biennium.

The Republican-controlled Senate approved a $28.5 billion spending plan in a 33-17 vote yesterday. The Indiana House is controlled by Democrats. Gov. Mitch Daniels is a Republican.

A special session began earlier this month to deal with the budget. Lawmakers adjourned in April after failing to resolve differences on a new two-year budget plan and Daniels waited to call a special session until revised revenue estimates were available last month.

The governor and lawmakers have agreed on a budget framework that leaves relies on cuts, taps about $300 million from existing reserves of $1.3 billion, and increases education spending.

Lawmakers are also reviewing a proposal to raise Indianapolis-area tourism taxes as part of a plan to overhaul the deficit-ridden Marion County board that manages the Colts stadium and convention center.

Under the plan announced by the governor and Indianapolis Mayor Greg Ballard, the Marion County Capital Improvement Board would be merged with the Marion County Building Authority.

"The Senate compromise, while significantly different from either of my two proposals, protects taxpayers within the limits I've requested and I would sign it," Daniels said in a statement yesterday. "I know there are many House Democrats who would prefer a budget that keeps Indiana in the black to one that takes us into bankruptcy, and we invite them to join this compromise now and bring the special session to a successful close."

Daniels and Ballard touted the plan as the most acceptable means to address the county CIB's $47 million deficit and concerns over its management.

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