CHICAGO - Kansas City, Mo.'s finance team has a busy borrowing schedule set for the remainder of the year with upwards of $800 million of issuance planned in at least a dozen transactions that range from the refunding of insured floating-rate debt to new money for water and infrastructure projects.
Treasurer Randall Landes' office is working on the refunding of three insured floating-rate transactions that sold in 2005 and 2006 to finance a series of major downtown development projects. All three carry insurance from Ambac Assurance Corp.
Since the insurer lost its AAA from Fitch Ratings earlier this year, interest rates have shot up by 200 to 300 basis points during the weekly remarketings, Landes said. The insurer retains its other two triple-A credits but all three rating agencies assign negative views to the credit.
The city plans to refund $231 million that provided funding for the new 18,000-seat Sprint Center arena with a fixed-rate bond issue sometime next month. The original variable-rate demand bonds are secured by an annual appropriation pledge and voter-approved business license fees on hotel rooms and rental cars that cover repayment of the debt.
JPMorgan is the senior manager. Depfa First Albany Securities LLC and Valdes & Moreno Inc. are as financial advisers. Kutak Rock LLP and the Hardwick Law Firm are co-bond counsel.
Kansas City will follow that transaction with two other restructurings involving debt sold to finance construction of its downtown entertainment district known as KC Live and to expand its convention center. The city plans to refund its $180 million issue for KC Live that carries Ambac insurance and a liquidity facility from Depfa. The city will again use a variable-rate demand structure but with a letter of credit provided by Depfa.
The new structure will cost the city about 30 additional basis points annually for the two-year LOC but will save the city significant costs overall because it is expected that the interest rate on the VRDO's will return to a level more in line with the Securities Industry and Financial Markets Association index.
Swaps on about $135 million with UBS Securities LLC and Lehman Brothers will remain in place. Kansas City has yet to name underwriters for the transaction but is working with First Southwest Co. and Valdes & Moreno as financial advisers and Kutak Rock and Hardwick as co-bond counsel.
The KC Live bonds are secured by an annual appropriation but the city is using only revenues generated by the project, including tax increment financing revenues and sales and income taxes
Kansas City will refund another $100 million of Ambac-insured variable-rate bonds issued as part of its expansion of the H. Roe Bartle Hall Convention Center. The bonds are repaid with hotel and restaurant sales taxes that secure the convention center's debt.
Dexia Credit Local will provide a direct pay letter of credit for $20 million and Bank of America will provide a LOC for an $80 million series. Underwriters have not been named. First Southwest and Valdes & Moreno are financial advisers and Gilmore & Bell PC and the Martinez Law Firm are co-bond counsel.
Kansas City has yet to decide whether the city itself or the Kansas City Industrial Development Authority will serve as issuer on the three. "We are trying to do whatever can to get us to market the fastest," Landes said.
He added the city plans to consider insurance on all its transaction, but given the shrinking number of firms with a solid triple-A and the increased costs for such coverage, it may prove more affordable to go with the city's underlying credit strength.
In September, Kansas City hopes to enter the market with its stalled water revenue bond issue that will refund about $104 million of outstanding debt and include as much as $113 million of new money. The refunding will allow the city to establish a new master bond ordinance for the water revenue bond program.
The plan is to overhaul the current program with the adoption of set fiscal policies such as the maintenance of revenues at a certain level of days cash on hand. "The goal is to have a program with all the hallmarks of a modern, well-run system with an upgraded financial management system," Landes said.
Merrill Lynch & Co. is the senior manager on the deal. Public Financial Management Inc. and TKG & Associates are financial advisers, with Gilmore & Bell and the Martinez Law Firm serving as bond counsel.
Kansas City currently has voter authorization to issue $250 million of bonds for clean water projects and another $250 million for sewer projects. The city has tapped a small piece of the sewer authorization in a previous sale but not the water authority. A sewer revenue bond issue of between $30 million and $50 million to raise new money for projects is also planned later this year.
The city's water revenue bond program carries existing ratings that range from the high single-A category to the double-A range. The deal stalled earlier this year when interest rates rose, stripping the refunding piece of potential savings.
Other deals slated for this year include a current refunding of about $31 million of airport revenue bonds for savings. The city hopes to price the fixed-rate deal in July. Bryan Cave LLP is bond counsel and First Southwest and Moody Reid are co-financial advisers.
Kansas City plans a $25 million to $30 million general obligation sale this winter to pay for various infrastructure projects and the expansion of the city's zoo. The city also has on tap a $48 million issue to finance construction of a parking garage for the downtown performing arts center, a $30 million tax increment financing sale to pay for a parking garage for a downtown office complex, and several restructurings of smaller TIF insured floating-rate bond issues that have seen higher rates in the current market because of their downgraded insurance.
Two rating agencies currently view Kansas City's credit negatively. Moody's Investors Service in March revised its outlook on the Aa3 GO credit to negative from stable while Fitch revised its outlook to negative from stable on the AAA GO credit in February. The city has $310 million of GOs and another $1.2 billion of outstanding lease and appropriation-backed bonds. Fitch rates the appropriation backed debt AA and Moody's rates it A2. Standard & Poor's rates the city's GOs AA and the appropriation debt AA-minus.
Moody's attributed the negative outlook to the city's exposure to interest rate risk on its VRDOs. The city also faces decreasing liquidity due to declining reserves amid operating budget struggles. Fitch cited the operating deficit coupled with the economic slowdown for its action.