CHICAGO — The Ohio Water Development Authority today will begin pricing $27.3 million of water development revenue bonds to provide loans for weakly rated municipalities across the state.
The finance team will today offer $1.6 million of tax-exempt bonds followed Wednesday by $25.6 million of taxable Build America Bonds. Stifel Nicolaus & Co. is senior manager and Rice Financial Products Co. is co-senior. Squire, Sanders & Dempsey LLP is bond counsel.
The tax-exempt bonds mature through 2015. The BABs feature serials that mature from 2016 through 2020 and term bonds that mature from 2021 through 2025 and in 2030 and 2035, bond documents said.
Proceeds from the borrowing will provide funds for the authority’s community assistance program, which offers loans to communities that would otherwise have trouble accessing the bond market, typically because of their small size.
The municipalities pay the OWDA between 1% and 2% interest rates on the loans, said chief operating officer Scott Campbell.
“The purpose of the community assistance program is to make loans to communities in the state where the cost of financing would be a financial hardship,” Campbell said. “So by the nature of the program, the credit quality of the pool is less than the credit quality of the [authority’s] fresh water and pure water programs.”
Despite the poor credit characteristics of some of the program’s borrowers, Moody’s Investors Service raised the debt to Aa1 from Aa2, reflecting the growing diversity of the loan pool, Moody’s said.
The boost also is due to the program’s credit support, called the cross-collateralization fund. The CCF is funded with surplus money from the fresh and pure water programs in order to cover any defaults or deficiencies in the community assistance program.
Fitch Ratings rates the debt AA-plus.
It’s the first time the authority has sold BABs for the community assistance program, according to Campbell. The finance team opted for the BABs because most of the borrowers take 30-year loans, he said.
“We’ve got cash flow available to us on the long end of the curve, so it’s financially compelling to issue BABs,” he said. In light of heightened federal scrutiny of BAB deals, Campbell said the OWDA talked with bond counsel to “make sure we understand what the risks are and what we need to do to comply with some of the things we’re hearing about.”
“The financial incentive to do BABs needs to be large enough, if you will, to justify that extra compliance work that we need to go through with the BABs,” he said.
