The Internal Revenue Service is currently auditing six to eight solid-waste transactions with a total par amount of $100 million of bonds still outstanding that involve Houston-based Waste Management Inc. or its subsidiaries, a company official said yesterday.
But there is no reason to believe that there are compliance problems with tax requirements in any of the transactions, which appear to be part of an IRS initiative to examine solid-waste bonds across the country, said David LaPaul, assistant treasurer at Waste Management. The IRS has already closed audits of two to four other deals involving Waste Management without taking any action, LaPaul said.
The latest Waste Management-related solid-waste bond transactions to receive IRS audit letters were sold by a Franklin, Wis., commission and Charles City County, Va., in separate transactions in 2003. The proceeds were loaned to the waste company or its subsidiaries to finance the acquisition, equipping, or rehabilitation of solid-waste disposal facilities.
Waste Management disclosed these latest audits in material event notices filed with DPC Data Inc. and other nationally recognized repositories this week. In each notice, Waste Management said it has no reason to believe that they are anything other than routine examinations.
In one transaction, the Regional Solid Waste Finance Commission, acting through Franklin, sold $50 million of Series A variable-rate demand solid-waste disposal revenue bonds in October 2003 to help Waste Management finance the acquisition, equipping, or rehabilitation of solid-waste disposal facilities in eight municipalities in Wisconsin.
In the material event notice, Waste Management said the commission, acting through Franklin, said it had received a letter from the IRS on April 9 that stated the bonds had been selected for examination.
The IRS said that it "routinely examines issuance of municipal debt to determine compliance with federal tax requirements. The debt issuance was selected for examination as part of a project initiative involving solid-waste disposal facilities revenue bonds ... At this time, we have no reason to believe that this debt issuance fails to comply with any of the applicable tax requirements."
The bonds are currently bearing interest at a fixed rate, payable semiannually, with no principal due until their final maturity on April 1, 2016, when all unpaid principal and interest will be due, according to the event notice.
They were underwritten by Banc of America Securities LLC. Wachovia Bank NA provided a direct-pay letter of credit. Foley & Lardner LLP in Milwaukee was bond counsel, and Fulbright & Jaworski LLP was underwriter's counsel, according to bond documents.
In the other transaction, the Charles City County Economic Development Authority, formerly known as the Charles City County Industrial Development Authority, sold $10 million of Series A bonds in August 2003 to finance the acquisition, construction, installation, and equipping of solid-waste disposal facilities in Charles City County.
The bonds currently bear a fixed rate of interest and are payable semiannually. The current fixed-rate period ends on April 30, 2014. On May 1, 2014, the bonds are subject to mandatory tender without any right of retention, and on or after that date, the company may direct the bonds to bear interest at a new fixed or variable rate of interest, the notice stated.
In the material event notice, Waste Management said the authority received a letter from the IRS on April 23, 2008, that stated the bonds had been selected for examination. "The IRS routinely examines municipal debt issuances to determine compliance with federal tax law requirements," the letter said.
The bonds also were underwritten by Banc of America Securities, and Wachovia provided a letter of credit in this transaction as well. Troutman Sanders LLP in Richmond was bond counsel and Fulbright & Jaworski was underwriter's counsel, according to bond documents.