WASHINGTON — The Berea City School District in Ohio has disclosed that it can redeem $12.87 million of series 2009B certificates of participation designated as Build America Bonds because its subsidy payments were reduced due to sequestration.

The school district, which has not determined whether it will redeem any or all of the BABs, made the disclosure in an event notice filed with the Municipal Securities Rulemaking Board's EMMA system on April 18.

The BAB program allowed state and local governments 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, which began on Oct. 1, because of congressionally mandated spending cuts known as sequestration.

The school district had expected to receive subsidy payments of about $163,288 in each of September 2013 and March of this year. But because of sequestration, it instead received payments of about $149,082 in September and roughly $151,531 in March, after reductions of about $14,206 and $11,757, respectively, according to the event notice.

The extraordinary optional redemption provision in the offering circular for the BABs allows the COPs to be redeemed in whole or part before Oct. 1, 2019, at a price equal to 100% of the principal amount being redeemed plus accrued interest to the redemption date.

On April 14, the school district's board of education adopted a resolution that acknowledged it received reduced subsidy payments and authorized the board's treasurer to exercise the extraordinary optional redemption right. The treasurer can exercise the right by giving written notice to the trustee, The Bank of New York Mellon Trust Company, N.A., that the outstanding BABs will be called after refunding certificates are delivered.

The school district serves students in the communities of Berea, Brook Park and Middleburg Heights in the suburbs of Cleveland.

Proceeds from the sale of the COPs were to be used to finance the construction, furnishing, equipping of a new elementary school building. The COPs represent proportionate interests in rent to be paid, subject to annual appropriations by the school board, under a lease-purchase agreement between the school district and the Ohio School Building Leasing Corp. The trustee is assigned the corporation's rights under the lease,  according to bond documents.

Stifel, Nicolaus and Co. was underwriter and Squire, Sanders & Dempsey LLP, now Squire Sanders (US) LLP, served as bond counsel.

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