CHICAGO — A new bond authority created to build and own a new arena in Lincoln, Neb., will competitively price $100 million of taxable Build America Bonds on Tuesday.

The transaction marks the first borrowing for the $344 million arena project, of which roughly $320 million will be publicly financed. A tax increase targeting the city's bars, restaurants, hotels, and car rentals would back a big chunk of the debt financing the new development.

The project includes the new arena as well as new roads, parking lots, and an outdoor festival space. The privately financed piece features a new hotel as well as retail, residential, and office space.

"The project is fairly significant for Lincoln, and the amount of debt that ultimately will be issued is pretty significant, too," said city finance director Don Herz.

The triple-A rated city plans to enter the market before the end of the year with its full allocation of $30 million of economic recovery zone bonds for the project.

The new authority, the West Haymarket Joint Public Agency, will follow with $220 million, likely issued in two series in 2011 and 2012. The city plans to issue $24 million of GO bonds in 2013 when the new arena and hotel open.

The agency is a partnership between the city and the University of Nebraska. It has the ability to levy an unlimited tax on the city if revenues fall short of debt-service payments, a feature that boosted its rating from credit analysts. The debt also features a pledge of Lincoln's full faith and credit.

The agency consists of Lincoln's mayor, a member of the City Council, and a member of the university's Board of Regents.

The authority would own the arena and rent it to the city, which in turn would rent it to the university. The school's Huskers basketball teams will play there for 30 years, starting in 2013.

Standard & Poor's rates the bonds AAA, and Moody's Investors Service rates them Aa1. Ameritas Investment Corp. is the city's longtime financial adviser. Lincoln-based Gilmore & Bell PC is bond counsel.

The city will take bids Tuesday morning. The bonds feature a final maturity of 2045 and are structured as interest-only for the first 10 years.

"There's an element of conservatism in that. We wanted to make sure we have adequate coverage and reduce the likelihood of having to impose any property taxes," Herz said. The interest-only payment structure "holds debt payments to a fairly low level for the first 10 years, and then we have level debt service over the next 25 years."

If the arena opens on schedule in 2013, it should generate revenues of roughly $19.2 million in 2014, providing 1.15 times debt service coverage, according to Moody's. The project will be located in the city's West Haymarket district that currently houses a scrap metal and lumber yard and Burlington Northern Santa Fe railroad tracks.

Moody's warned that one of its top concerns is construction delay associated with relocating the main railroad tracks, which currently bisect the arena location.

While the city had hoped to have reached an agreement with Burlington Northern by mid-August, officials now expect to secure a final agreement sometime in September, Herz said.

To pay off the debt, the city will raise its sales tax rate on bars and restaurants by two percentage points, pushing the rate to 9% from the current 7%, and by four percentage points on hotels and car rentals.

Other revenue sources backing the debt include arena and parking revenue and so-called turn-back taxes, which are sales taxes collected by the state around the development and given back to the city.

The development will be located in a newly created tax-increment financing district, and TIF revenue is also expected to help pay back debt.

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