CHICAGO – Plans for the Iowa Fertilizer Co. to tap up to $1.2 billion of Midwestern Disaster Area Bond financing through the Iowa Finance Authority for its proposed nitrogen fertilizer plant are advancing with a public hearing on the financing slated for next week.
The required hearing is scheduled for Thursday, a day after the authority board’s regular board meeting. With the federal private-activity revenue bond program set to expire at the end of the year, the board is expected to hold a special meeting to approve the financing soon after the hearing, said IFA community development director Lori Beary.
Many of the sizing, timing and structural details of the issue for the $1.4 billion project planned by a subsidiary of Egyptian-based Orascom Construction Industries are still in flux, according to IFA legal advisers James Smith and David Grossklaus of Dorsey & Whitney LLP’s Des Moines office. The company is working with investment bank Citi to underwrite the transaction. It could price as early to mid-December, Smith and Grossklaus said.
The deal would mark the largest under the MDAB program established in 2008 and could be one of the largest private activity bond issues sold on behalf of a company. It also would exhaust the IFA’s $2.6 billion allocation.
The IFA is administering the state's federal allocation under the $14.6 billion program, which permits the use of tax-exempt bonds for qualified privately-owned projects aimed at generating jobs and economic activity in Midwestern counties hurt by weather-related damage in 2008.
Iowa has had more success tapping the program than some of its neighbors and it has a waiting list for its MDAB allocation of between $50 million to $70 million.
Alcoa Inc., the giant aluminum producer, tapped $250 million, and agricultural giant Cargill Inc. has used $200 million. Archer Daniels Midland Co., the world’s largest grain processor, received a $200 million allocation for improvements at its processing facilities, and FedEx Corp. has also used the program for warehouse projects.
Seventy-eight of Iowa’s 99 counties were designated disaster areas. When the program was first approved, some bond lawyers said it was limited to firms that suffered damage from the flooding and storms that hit the Midwest earlier in 2008. They had questions as to what constituted a loss and, in a replacement situation, whether the new business needed to be the same as the old one
The Internal Revenue Service released guidance in late 2009 that gave states more freedom to choose which projects or replacement businesses to finance with bond proceeds. Counties in Arkansas, Indiana, Illinois, Iowa, Missouri, Nebraska and Wisconsin are eligible.
Gov. Terry Branstad and Orascom officials announced in September the company’s selection of the state to house the plant. The Iowa Economic Development Authority’s Board has approved more than $100 million in tax credits and other financial incentives. Lee County, which will house the site, has also agreed to forgo $133 million in property taxes.
The project is expected to create 165 permanent jobs and several thousand construction jobs, and save farmers as much as $740 million annually because of reduced transportation and import costs. The nation imports about half of its nitrogen fertilizer.
The state recently announced a non-bonding incentive package for another fertilizer project that tops the Orascom project in size. CF Industries Inc. is undertaking a $1.7 billion expansion of its fertilizer manufacturing operations in Woodbury County.
“This is another great announcement for Iowa, and we are proud that CF Industries has chosen us for its $1.7 billion expansion,” Branstad said. The state awarded the project $1.5 million in direct assistance and tax credits totaling $22 million with the potential to grow to $57 million.