CHICAGO - Indianapolis Public Schools plans to enter the market Wednesday with $130 million of debt that will feature a mix of Build America Bonds, qualified school construction bonds, and a small piece of traditional tax-exempt debt.

The debt will finance the $245 million, third phase of the district's $900 million, 10-year capital improvement plan launched in 2001. IPS has already issued $450 million of bonds for the program and expects to issue another $115 million next year.

The transaction will mark the district's first issuance since Indiana recently implemented a sweeping property tax reform overhaul that imposed new restrictions on issuers.

Restrictions include a 20-year cap on final maturities, level principal and interest payments over the life of the bonds, and voter approval for projects totaling more than $20 million for high school projects or $10 million for elementary school projects. Last fall, IPS took the $245 million debt proposal to the voters and won 78% of the vote.

With this week's deal, the district will take advantage of bond provisions included in the American Recovery and Reinvestment Act.

Of the $130 million, $99.3 million will consist of taxable first mortgage BABs and $26 million will consist of taxable first mortgage QSCBs. Under the BAB program, the district will collect a direct 35% subsidy from the Treasury Department.

As one of the top 100 largest school districts in the country, IPS is authorized to issue $31 million of QSCBs. Under the QSCB tax-credit program, issuers do not pay interest and instead the federal government provides investors with a tax credit.

The remaining $4.7 million will be traditional tax-exempt, fixed-rate first mortgage bonds. Proceeds from that series will finance ongoing construction projects, which are ineligible for federal stimulus subsidies under ARRA requirements.

"We are very hopeful that the market will receive this favorably," said Colette Irwin-Knott, the district's financial adviser with H.J. Umbaugh & Associates LLP. "It is indeed a new tool, so there are lots of details that need to be understood, but this is a very strong credit with a double-A rating."

The district is selling its QSCBs as some other issuers of the debt have had to supplement the Treasury's tax credit with additional interest-rate percentage points to attract investors.

"For the timing of IPS, they are entering the market with a unique condition relating to the QSCBs due to the corporate rates dropping faster than state or federal rates," Irwin-Knott said. Other districts have offered additional subsidies, but Irwin-Knott declined to comment on whether IPS would be likely to do so.

All the debt is secured by lease rental payments made from property tax revenue. Debt service on the bonds will be outside the state's property tax caps because voters approved the debt in a referendum last fall.

The bonds are also enhanced by a state intercept program that pledges state aid if the district fails to make a full or timely payment. Based on the state aid intercept program, Moody's Investors Service assigns a programmatic rating of Aa3 and Standard & Poor's AA-plus to the debt.

Standard & Poor's maintains an underlying rating of AA on the debt.

City Securities Corp. and Morgan Stanley are joint book-runners on the transaction, with Loop Capital Markets LLC, Andes Capital Group LLC, and Backstrom McCarley Berry & Co. also on the underwriting team. Bakers & Daniels LLP is bond counsel.

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