CHICAGO -- Indianapolis is coming to market this week with $50.2 million of tax increment backed revenue bonds to finance a pair of large downtown development projects.
The two new projects will bring more than 500 new apartments to the downtown, which is seeing a demand for living space, officials said. The buildings will be located in the heart of the city's business district.
The deal is set to price Wednesday.
"It's going to be neat for the skyline," said Gregory Clark, deputy director and general counsel of The Indianapolis Local Public Improvement Bond Bank, which will issue the bonds. "These are big developments."
The largest project — a 28-story tower with 300 new apartments and a Whole Foods on the first floor — costs a total of $81 million. The upcoming borrowing will contribute $22 million of that.
Another project on Massachusetts Avenue will replace the current Indianapolis fire department headquarters and a fire station with another new mixed-use building with 235 apartments.
Indianapolis already has a large TIF district that encompasses much of downtown. The district was expanded to include the Massachusetts Avenue site. The 28-story building is not part of the district, but because it is adjacent to it, will still benefit from the tax revenue, according to Clark.
"That site has seen 13 years of unsuccessful attempts at redevelopment," he said of the new 28-story building.
The city's senior-lien TIF bonds originally issued in 1992 matured in February. All the rest of the outstanding TIF-backed debt, which totals $616 million, are subordinate-lien bonds, and the bond bank has pledged not to issue any more senior-lien debt.
The new bonds will also feature a subordinate lien. With the upcoming borrowing, annual debt service will total just under $50 million, according to Clark. The district generates roughly $76 million in annual revenue.
The bonds are backed solely by a pledge of the TIF revenues, but the city has attached its moral obligation pledge to the borrowing, promising it will replenish a debt-service reserve fund to the amount needed to cover maximum annual debt service on the borrowing.
The bonds have split ratings after the city lost its prized triple-A rating from Standard & Poor's last December. Moody's Investors Service and Fitch Ratings, which still maintain triple-A ratings on the city's general obligation bonds, rate the new bonds Aa2 rating and AA, respectively. "The two-notch distinction from the city's Aaa general obligation rating is due to the non-essentiality of the financed projects and the risk of non-payment on the city's moral obligation," Moody's said.
Standard & Poor's rates the bonds A. S&P downgraded the city by two notches last December, citing its revised local local government criteria and not any underlying changes in the city's economic position.
Ratings analysts said the debt-service coverage from the TIF district should be strong. Fitch estimated it at 1.98 times. The city's moral obligation pledge also provides a strong credit enhancement, according to analysts.
The bonds are divided into two series, including $46.6 million of tax-exempt debt and $3.6 million of taxable bonds.
JPMorgan and Loop Capital Markets are the underwriters. Barnes & Thornburg LLP is bond counsel and Crowe Horwath LLP is financial advisor.
