CHICAGO — The Indianapolis Local Public Improvement Bond Bank will come to market next week with $21 million of economic development tax-increment financing bonds that will support a $340 million expansion of Dow AgroSciences LLC’s headquarters.
The borrowing is part of Indianapolis’ successful effort to convince Dow to remain in the city with the company embarking on a major expansion of its headquarters and a research and development campus. Indiana is also giving Dow tax credits as part of the effort.
The campus is expected to generate $80 million in new tax revenue over the next 15 years and create 700 new jobs in addition to the 1,100 already at Dow, said Deron Kintner, the bond bank’s executive director.
“Dow did a worldwide search, and the project is bringing such benefits that the city really wanted it to stay here,” Kintner said.
Debt service over the 15-year life of the debt is estimated at $34 million. “When you look at the numbers, it’s a great project and the city is fortunate to have it,” Kintner added.
The project is located in an existing TIF district that Indianapolis created in 1990 when it first was trying to lure Dow AgroSciences, which is a subsidiary of Dow Chemical Co., to the city.
As part of that campaign, the city issued $8 million of bonds for the district. The debt was paid off in 2007 and the TIF district now brings in $6 million annually, Kintner said.
Moody’s Investors Service rated the bonds Aa2 and a rating is expected from Standard & Poor’s.
The bond bank will price the debt Thursday.
Mesirow Financial Inc. is the underwriter on the transaction, acting as senior manager for the first time for the bond bank. Backstrom McCarley Berry & Co., a San Fransisco-based minority-owned firm with a local office, is co-manager. Crowe Horwath LLP is financial adviser and Barnes & Thornburg LLP is bond counsel.
The bonds will mature through 2025. About $2.3 million of the proceeds will cover capitalized interest through 2013. Another $2 million will go into a debt-service reserve fund, and $753,860 will go toward issuance costs.
While pledging all TIF revenue to the bonds, the city expects to pay debt service from new revenues generated by the campus project, separate from the $6 million currently generated in the TIF district, Kintner said. Indianapolis has a total of 41 TIF districts. The bonds also carry the city’s moral obligation pledge under which the Indianapolis-Marion County City-County Council pledges to appropriate money to replenish the debt service reserve fund if necessary.
Separately, the bond bank is gearing up for a $170 million borrowing tentatively scheduled for July that will securitize payments from the sanitary district to generate money for infrastructure projects across the city.
That deal comes as the city moves toward finalizing the sale of the water and sanitary district to Citizens Energy Group, a nonprofit utility.
Under the tentative agreement with the city, Citizens will pay $425 million for the assets and assume $1.5 billion of outstanding debt. A final agreement still needs to be hammered out, and the City-County Council and the Indiana Utilities Regulatory Commission must sign off on the deal.
