CHICAGO - The Indianapolis Public Improvement Bond Bank plans to head to market with two issues over the next few weeks after pricing $127 million of notes yesterday to cover cash-flow deficits for local governments.

Yesterday's note sale will help Marion County and Indianapolis cover cash flows until property tax revenue begins to flow in next year, while the upcoming refundings are expected to eliminate the bond bank's final piece of auction-rate debt and a chunk of insured variable-rate debt.

The bond bank - which acts as the borrowing entity for the city and the county - brought the notes to market yesterday after gauging "tremendously strong indication of interest" from investors, said bond bank executive director Kevin Taylor, who joined the agency last year as part of new Indianapolis Mayor Greg Ballard's administration.

City Securities Corp. was senior manager on the transaction. Ice Miller LLP was bond counsel.

The notes captured an interest rate of 1.5% and were purchased by money market funds and two private money managers, said Jim Merten at City Securities. "It sold right where we priced it, and in this market that's probably a good thing," Merten said.

The bond bank will use proceeds from the note issue to provide money to Marion County to purchase warrants that will finance various expenses for the city, the county, and the city-county library district.

While the bond bank's note program is 20 years old, this year's issuance marks one of the first under Indiana's massive new property tax reform legislation. The legislation is causing some additional delays in tax collections, Taylor said, adding that the city controller estimated delays would be eliminated by 2010.

Meanwhile, the bank plans to enter the market over the next few weeks with two additional bond sales.

After Thanksgiving, the issuer plans to sell $46 million in a mix of new-money and refunding fixed-rate bonds on behalf of the city's Metropolitan Emergency Communications Agency. About $33 million will be used to refinance outstanding notes and the remainder of the issue will be used to finance the purchase of new radio equipment, Taylor said. The bonds have not yet been rated. KeyBank Capital Markets will be senior manager on the deal.

In early December, the bond bank plans to refund two $50 million bond issues issued for the city's water department. One of the issues is auction-rate debt and the other insured variable-rate debt. All the water utility's variable-rate debt, including the two issues to be refunded, are insured by now-downgraded MBIA Insurance Corp.

"The bond insurer has been paid good money to insure our bonds with a triple-A rating, but where is that now?" Taylor said. "They have not fulfilled their part of the contract with the bond bank."

The refunding will reduce the water department's floating-rate exposure, Taylor said. Of the utility's roughly $848 million of outstanding debt, $485 million is variable rate. "That's too much exposure to the variable-rate market, so this will be a big step to address that," he said.

The department's high floating-rate exposure, and the pressure that rising interest rates are putting on debt service coverage, is one reason why Moody's Investors Service this week revised its outlook to negative on the utility's debt, said analyst John Humphrey.

Bond bank officials plan to meet with rating agencies in early December for a formal presentation on the debt issue, while currently the utility's debt is rated A1 by Moody's and AA-minus by Standard & Poor's and Fitch Ratings.

The bond bank is still deciding whether to refund the bonds in the fixed-rate mode or with a two-year put, said Taylor. Morgan Stanley is senior manager on the deal.

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