Ohio HFA to Issue $72M of Mortgage Bonds Aimed at Retail

CHICAGO - The Ohio Housing Finance Authority next week plans to enter the market with roughly $72 million of tax-exempt mortgage bonds in a transaction scaled back from its original size and newly designed to attract retail investors.

The issue comes a few months after the OHFA, one of Ohio's busiest issuers, planned to sell up to $200 million in residential mortgage revenue bonds, before deciding to cut back the size of the transaction as the credit crunch froze the market.

"We realized that access to the capital markets, especially for housing bonds, was virtually nonexistent," said Bob Connell, director of debt management for the housing agency. "Since that time it would appear that the credit markets have improved to the point where there is some interest in some housing bonds. When we saw retail interest that was exhibiting itself in recent bond issues, and especially in the last week or so in state housing agency bond issues, we felt that was the way to go."

In the last two weeks, housing finance agencies from Maine, Connecticut, New Jersey, and New York have all sold bonds.

The finance team structured the bonds to mature largely in the short- and intermediate-term, a part of the yield curve that has generally proved more popular with retail investors than with institutional investors.

Retail interest in OHFA bonds has picked up over the last several years, said Connell. In August retail investors purchased roughly $65 million of a $175 million issue. Though the upcoming bonds have not yet been rated, Moody's Investors Service frequently rates the OHFA's bonds Aaa. Moody's also assigns an A1 rating to the authority.

Other details of the transaction will be decided as the OHFA enters the market, likely next Tuesday. The issue could increase from its current $72 million size depending on demand, Connell said. The bonds are currently structured as fixed-rate, but the issuer may include a variable-rate piece as well.

Every four years the OHFA issues a new request for proposals for underwriters, and it is currently in its first year with a new team that consists of both Wall Street firms and a group of local investment banks.

George K. Baum & Co. is senior manager on the deal, while Citi and Goldman, Sachs & Co. are co-seniors. Seven firms round out the team, including several firms that are locally based. The Ohio-based firms are: KeyBanc Capital Markets Inc., Butler Wick & Co., SBK-Brooks Investment Corp., Fifth Third Securities, Inc., and NatCity Investments, Inc. Barclays Capital and Merrill Lynch & Co. are also on the team.

"We feel very strongly in the concept of 'Buy Ohio,' " Connell said. "They bring strong Ohio retail distribution capabilities, and have done remarkable things in distributing housing bonds."

RBC Capital Markets is the authority's financial adviser.

Proceeds from the bond issue will fund a loan program for first-time, low- to moderate-income homebuyers. Despite the widespread downturn in the housing market - especially in Ohio, which has some of the highest foreclosure rates in the country - the OHFA is seeing only increased demand for its mortgages, according to Connell.

The problem is not from a dearth of interested homebuyers, but from the agency's inability to access the capital markets to fund those mortgages, he said.

"If we are denied access to the capital markets for whatever reason, we don't have the funds available to fund that program, so in a way, first-time homebuyers in Ohio are penalized because the capital markets are closed to us," Connell said.

Next week's transaction will be the fourth issue of the year for OHFA. It currently plans to sell another $200 million in bonds early next year.

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