DALLAS — Investors interested in today's $40 million competitive sale by New Orleans can bid for the debt as Build America Bonds or conventional general obligation bonds, with the lowest offered rate winning the entire tranche.
"It's either going to be all BABs or all GOs," said David W. Gernhauser, secretary of the New Orleans Board of Liquidation, City Debt. "We will not split it into pieces or award half as BABs, half as GOs."
This is the first debt sale by New Orleans that involves BABs, he said.
Gernhauser said the board will make the decision on which bid is most favorable to the city in consultation with its financial adviser Public Financial Management Inc. and co-bond counsels Foley & Juddell LLP, the Cantrell Law Firm, and the Godfrey Law Firm PLC.
"We'll accept the best bid, and reject any others," he said. "We expect to have two sets of bids, and we'll compare them."
Gernhauser expects the winning bid to be in the 4.5% to 5.5% range. "But that's just a guess," he said. "It will of course depend on the market.
Peter Kessenich, a managing director with PFM, said the all-or-nothing approach was selected for its simplicity.
"This makes it easier," he said. "New Orleans is a tough enough sale anyway."
Kessenich said the bonds will not be insured.
"Bond insurance is just too expensive," he said. "Besides, there are not many insurers left out there."
The city will take bids until 1 p.m. Central Standard Time through Ipreo LLC's Parity bidding platform.
New Orleans's GO debt is rated Baa3 by Moody's Investors Service, and BBB by Standard & Poor's and Fitch Ratings.
The city's recovery from the two hurricanes that flooded it in 2005 continues, with the current population estimated at 360,000, or 80% of the pre-Katrina level.
The sales tax is the primary source of revenue for New Orleans, accounting for almost 30% of the general fund budget. Sales tax revenue in fiscal 2009 is expected to total $139 million, or 11% less than expected.
With the sale, New Orleans will have $548 million of outstanding GO debt. All proceeds from today's sale are dedicated to street restoration efforts.
The sale is the second tranche based on an authorization by voters in November 2004 of $260 million of 30-year GO bonds. The first sale from the 2004 approval was $75 million of GO bonds in 2007.
Gernhauser said the city plans to issue another $40 million from the 2004 authorization in the second half of 2010.
The $260 million bond package approved by voters included $162.9 million for streets. Other allocations from the 2004 authorization included $45.5 million for public buildings, $43.5 million for parks and recreation, and $8.1 million for libraries.
The $145 million of authorized but unissued GO bonds includes $97.9 million for streets, $26.9 million for parks, $16.8 million for public buildings, and $3.4 million for libraries.
The city's non-GO debt includes $138.5 million of pension obligation bonds and $22.7 million of bonds supported by its drainage tax.