BRADENTON, Fla. - Orlando, Fla., is pricing $238.6 million of revenue bonds the week of March 24 to continue financing downtown community venues for the arts and sports, including a Major League Soccer stadium.
Proceeds will finance major renovations to the Citrus Bowl, ongoing construction of the Dr. Phillips Center for the Performing Arts, and partial financing for a soccer-specific stadium for the Orlando City Soccer Club, which recently was awarded an MLS franchise.
The initial structure of the double-A rated transaction calls for serial bonds maturing between 2016 and 2034, a $54.9 million term bond maturing in 2039, and a $70.04 million term bond that matures in 2044.
City officials said the final structure was subject to change during pricing, which is scheduled Wednesday for retail and Thursday for institutional sales.
"This is a story bond if there ever was one," said Rebecca Sutton, Orlando's chief financial officer. "Essentially what we're doing is pledging a revenue stream that is from the tourist development tax."
Orange County, not the city, collects the TDT. Through an interlocal agreement, or contract, the county agreed to distribute certain tax revenues to the city to secure the bonds.
Because the revenue stream can be volatile at times, depending on the economy or other outside forces, and contract tourist tax revenues are distributed once a year for semi-annual debt payments, Sutton said the city strengthened the security of the bonds in a number of ways.
"We have our typical debt service reserve funds, however, we have bifurcated that into a liquidity fund and debt service reserve," she said.
The debt service reserve and a liquidity reserve are each funded at 50% of maximum annual debt service. Another $25 million of reserves are funded in cash by Orlando and the city's community redevelopment agency.
If the cash reserve is drawn upon, the city will refill it up to a total of $12.5 million while the CRA will provide additional cash from available revenues.
Backing the entire structure is the city's covenant to budget and appropriate.
"We basically fit the front end of the deal to our expected cash flow," said Sutton. "It is unique because you don't typically have a revenue source passed to another entity that will then be bonded."
She said the structure should make the bonds "very attractive."
"Some characteristics of this provide for some insulation from the general fund, but ultimately the bondholders are protected," she said. "We wanted to create a structure that the bondholders could have confidence in, but not be such that we would be placing the city at any appreciable risk."
The structure, particularly the city's covenant to budget and appropriate, won the transaction ratings of AA-plus from Fitch Ratings and Aa2 from Moody's Investors Service.
Moody's said its rating is based on the strength of the city's non-ad valorem pledge, which reflects both ample identified funds for repayment of non-ad valorem obligations as well as the expectation that a majority of non-ad valorem debt will continue to be paid from other non-operating funds and revenues.
The structure "minimizes the impact on the general fund," according to Moody's analyst Moses Kopmar.
"We believe the legal structure combined with the proposed schedule of gradually ascending debt service reduces the likelihood that the city will be called upon to appropriate for payment of debt service," Kopmar said.
Fitch assigns Orlando its AAA implied general obligation rating because of the city's "solid finances, high but manageable debt levels and an expanding and diversifying economic base," according to analyst Larry Levitz.
"City finances are well-managed as demonstrated by strong reserves, ample liquidity, a diverse revenue base and conservative budgeting," Levitz said. "Local economic activity has surged over the past three years with the recovery in tourism."
Both rating agencies said a favorable attribute is the city's reputation as a "world-renown tourist destination" with a number of mega-theme parks that include Disney World and Universal Orlando.
Analysts also noted that Orlando's economy is diversifying with growth in biomedical and health sectors that include the Sanford-Burnham Medical Research Institute, the University of Central Florida's new medical school, Nemours Children's Hospital, and a Veterans Administration medical center that is currently under construction.
The upcoming issue marks the third financing for Orlando's $1.3 billion downtown "community venues" arts and sports program.
The first major component of the program, a 20,000-seat arena for the National Basketball Association's Orlando Magic, opened in 2010.
The community venues plan was revised late last year to include an 18,000 to 20,000 seat, soccer-specific stadium. In addition to the $20 million in financing, the city is also providing the land. Total cost of constructing the stadium is $70 million, of which $40 million is from the team and $10 million is from other governmental sources.
"The team is taking the risk on all cost overruns, and is contract with a builder," similar to the arrangement between the city and Orlando Magic for the Amway Center arena, Sutton said.
The stadium project helped Orlando City Soccer win an MLS franchise, which was announced in November. Orlando City's Lions, currently in the minor USL PRO league, will begin MLS play in 2015 as the league's 21st club.
"We expect that this is going to be a very strong driver of additional tourism," said Sutton. "This soccer stadium will help to pay for itself through the additional tourism we expect to get."
Bond proceeds will go toward finishing the first phase of the performing arts center, which is also being done through private funds and donations, and prior tax increment financing. Phase one, scheduled to open later this year, consists of a 2,700-seat theater for Broadway productions and concerts, a 300-seat multi-purpose community theater, food and beverage facilities as well as space for educational programs and administrative offices.
Phase two, to be built later, will add a 1,700-seat acoustical theater for symphonies, opera, and ballet as well as rehearsal and additional educational space.
A long-awaited major renovation and expansion of the 78-year-old Citrus Bowl is also under way. About 80% of the stadium has already been demolished.
The renovation will result in 61,000 permanent seats with room to add 4,000 temporary seats, 45 suites, and digital display upgrades. Substantial bowl renovation is expected to be complete this November in time to host college football games.
Bank of America Merrill Lynch is the book-runner for the 2014 bonds, and Citi is co-senior manager. Other underwriters are Cabrera Capital Markets LLC, Jefferies LLC, JPMorgan, Morgan Stanley & Co., Rice Financial Products Co., and Stifel, Nicolas & Co.
Public Financial Management Inc. is the city's financial advisor.
Bryant Miller Olive PA is bond counsel. Greenberg Traurig PA and Seaton and Associates are co-disclosure counsel. Underwriters' counsel is Marchena and Graham PA.