IRS Audits $20M Solid-Waste Deal From Virginia County IDA

The Internal Revenue Service has opened an audit into $20 million of variable-rate demand solid-waste disposal revenue bonds issued by the King George County, Va., Industrial Development Authority.

The borrower, Waste Management Inc., disclosed the audit in a material event notice it filed yesterday with the nationally recognized municipal securities information repositories.

The bonds were issued in 2003 for King George Landfill Inc., a wholly owned subsidiary of Waste Management. The bond proceeds were used to finance the acquisition, construction, installation, and equipping of solid-waste disposal facilities for several projects within the county, according to bond offering documents.

Banc of America Securities LLC served as the underwriter of the deal and Troutman Sanders LLP was bond counsel. Deutsche Bank Trust Company Americas was trustee.

At the time of the sale, the bonds were rated BBB by Standard & Poor's. The bonds are fixed rate with final maturity dates of 2023. According to the material event notice: "On May 1, 2009, the bonds are subject to mandatory tender without any right of retention, and on or after that date, the company may direct that the bonds bear interest at a new fixed or variable rate of interest."

In its notice, Waste Management said: "The company has no reason to believe that the examination is anything other than a random examination of the type of transaction that the bonds represent."

However, several conduit issues sold for Waste Management or its subsidiaries also are under IRS investigation. In September, the company disclosed that the IRS was conducting an audit of the Northeast Maryland Waste Disposal Authority's $41.1 million of Series 1998 resource recovery revenue bonds. Those bonds were sold to finance air-emissions control equipment at a solid-waste disposal, resource recovery, and steam- and electricity-generating facility in Baltimore, according to bond offering documents.

In the material event notice, the company said it believed the audit was a random examination of that particular bond type.

Similar language was found in material event notices disclosing audits last spring of $15 million of exempt facilities bonds issued in 2001 by the Arkansas Development Finance Authority, and $10 million of solid-waste disposal revenue bonds issued in 2003 by the Nevada Department of Business and Industry. In addition, the IRS is auditing two issues of solid-waste disposal bonds sold by Gilliam County, Ore. - $25 million in 2002 and $15 million in 2003.

Orrick, Herrington & Sutcliffe LLP was bond counsel on the Nevada and two Oregon deals, and Banc of America was the underwriter on all three. For the Arkansas issue, Wright, Lindsey & Jennings LLP was bond counsel, and SunTrust Capital Markets Inc. was underwriter and remarketing agent.

No further information has been released on the investigations since then, but a company spokeswoman said yesterday that some past IRS probes of Waste Management deals have been closed. She declined to specify which ones or whether they were closed through settlement agreements. Authority officials could not be reached for comment.

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