CHICAGO — Minnesota heads into the market with a rare revenue-backed issue beginning on Monday when it will take retail orders on $60 million of bonds to fund its ongoing efforts to establish a statewide digital-radio communications system for public safety personnel.
The state will open up the 15-year issue — secured solely by a portion of the 911 surcharge tacked on to phone bills — to institutional buyers on Tuesday, said state debt manager Kathy Kardell. Jeffries & Co. is the senior manager.
Ahead of the sale, all three rating agencies affirmed their mixed ratings.
Fitch Ratings rates the bonds AA-minus while Moody’s Investors Service rates the debt A1 and Standard & Poor’s weighs in with a AA-plus.
The state has issued about $77 million — including $35 million in 2006 and $41 million in 2008 — to fund the six-phase Allied Radio Matrix Emergency Response system so far.
The ARMER system is designed to enable the state’s emergency response organizations to utilize a single, integrated, and highly structured digital-radio communications system.
“This really allows for direct interoperable communication between all levels of government and first responders,” Kardell said.
The project has been in the works for years. Planning and development of the first phase began in 1995 — long before the 2001 terrorist attacks highlighted the need for such systems — when Minnesota formed the Metropolitan Radio Board.
The first and second phases funded the system’s infrastructure in nine counties in the Twin Cities region. Phase 3 is extending the system to 23 counties in the St. Cloud and Rochester regions. The final three phases call for the extending the system to the rest of the state.
Some local governments had been slow to participate as they weighed the costs of new software and equipment that might be needed.
The state financing provides funding for the system’s infrastructure and the state does have some funds available to assist local governments in covering their costs.
Kardell said the state has seen growing interest over the last year with the number of participating counties up to 40 from around 20 a year ago.
The state has about $90 million of legislatively approved debt authorization remaining after the current deal. Debt to raise those funds would be issued between 2010 and 2012.
The bonds are secured by pledged revenues from the 75-cent 911 monthly emergency fee imposed on phone lines capable of making a 911 emergency call. The revenue stream is narrow but it’s been in place for 20 years and has generated steady income, although Fitch notes that “emerging technologies potentially pose a risk to the legal and practical application of the fee.”
The bonds carry a first priority on 911 revenues with the exception of $14.3 million debt sold in 1999 by the Metropolitan Council to fund the first phase of the system.
Fee revenue is expected to provide 2.15 times coverage of debt service once all of the state debt earmarked for the project is sold.
“The A1 rating reflects healthy coverage of pledged revenues with the expectation of additional bond issuance, an additional bonds test of 1.5 times and the continued inherent risk of technological changes. The outlook is stable,” Moody’s wrote.
The state has tentatively set the sale date for its $480 million new-money general obligation issue for the week of Oct. 26. The deal marks the state’s first GO issue that will be sold through negotiation with Barclays Capital as the senior manager. Banc of America Securities-Merrill Lynch and Wells Fargo Securities are co-senior managers. The state’s $5 billion of GOs carry top marks from Fitch and Standard & Poor’s and a Aa1 from Moody’s.