WASHINGTON — The Lexington-Fayette Urban County Government in Kentucky expects to competitively sell about $61.71 million of bonds on April 22 in order to redeem $60.47 million of Build America Bonds that it issued in 2010, an issuer official said.
The anticipated sale comes after the Treasury Department's subsidy payments to the issuer for its series 2010A BABs were reduced due to sequestration, triggering an extraordinary optional redemption provision that was in bond documents. The issuer disclosed last week that it has the ability to redeem the BABs in an event notice filed with the Municipal Securities Rulemaking Board's EMMA system.
The BAB program allowed issuers in 2009 and 2010 to issue taxable bonds and receive subsidy payments from the Treasury equal to 35% of the interest costs. But the payments to issuers were reduced by 8.7% for part of fiscal 2013 and are being reduced by 7.2% in fiscal 2014 because of congressionally mandated spending cuts known as sequestration.
The local government issuer received the reduced subsidy payments in connection with its interest payments for September 2013 and March of this year. The issuer was still able to make its interest payments and is not reporting any delinquency.
But the reduced subsidy payments have triggered the BABs' extraordinary optional redemption provision, which allows the issuer to redeem the bonds at a price equal to 100% of the principal amount plus accrued interest to the redemption date, according to the event notice.
In September, the issuer adopted ordinances that authorized bond issuances to refund all or part of the series 2010A bonds and other direct-pay bonds whose extraordinary redemption provisions were triggered. Market conditions now appear favorable to refund the series 2010A bonds, Bill O'Mara, its commissioner of finance said in an email.
The issuer is the general local government unit for the city of Lexington and Fayette County, which merged in 1974. The series 2010A BABs were originally issued in the amount of $69.32 million. The proceeds were used to finance projects in the county, including the purchase of public safety equipment, improvements to a theater and infrastructure improvements related to a redevelopment project in an area where former liquor distilleries were located, according to the official statement.
Steptoe & Johnson PLLC was bond counsel and Piper Jaffrey & Co. was underwriter.