WASHINGTON - The Virginia Resources Authority next week will come to market with debt to help finance restoration of the Chesapeake Bay, while the Virginia College Building Authority will sell bonds to pay for various projects.
The VRA plans to bring $174 million of clean-water state revolving fund subordinate revenue bonds to market in a negotiated sale beginning Tuesday that will finance 13 projects with 11 borrowers, mostly for a program to clean up the Chesapeake Bay.
The VCBA will bring about $392 million of educational facilities bonds in a negotiated deal Tuesday. The deal will include about $84 million of taxable bonds and $19.6 million of refunding bonds.
The VRA's Series 2009 bonds carry natural triple-A ratings from all three major rating agencies and will be offered to retail investors on Monday with institutional pricing on Tuesday, said Sheryl D. Bailey, executive director of the VRA.
"Certainly, with triple-A ratings - natural triple-A ratings - we see ourselves being in the flight-to-quality category, as the market has gone through its fundamental transformation with a higher emphasis on credit quality," Bailey said. "The driving forces of the market are coming our way, in terms of credit and quality."
Morgan Stanley is senior manager on the VRA deal. Loop Capital Markets LLC is co-senior manager. Fidelity Capital Markets, JPMorgan, and Wachovia Securities round out the underwriting team.
McGuireWoods LLP is bond counsel. Underwriters' counsel is Troutman Sanders LLP.
Co-financial advisers are Davenport & Co. and Strategic Solutions Center LLC.
The bonds mature serially between 2012 and 2031.
The borrowers are the Alexandria Sanitation Authority, Arlington County, Augusta County Service Authority, Falls Church, the Frederick Winchester Service Authority, the Hampton Roads Sanitation District, Lovettsville, Newport News, the Rivanna Water and Sewer Authority, Salem, and Stafford County.
Bailey said there has been an influx of localities interested in joining the VRA programs, especially in light of volatility in the municipal market and a lack of available bond insurance.
"We think that these loans are making a difference, in terms of the quality of life and also the bottom line because of the interest rate savings we're able to provide these communities," Bailey said. "This program provides discount loans. So many of these entities could sell [debt] on their own, but the discounts in the state clean water revolving fund are compelling. In today's market, with the current credit spreads, a triple-A is worth more."
The program also pays issuance costs for the borrowers and a payment waiver during the construction of the projects.
"There are tremendous advantages for the localities using the clean water SRF program," Bailey said. "These advantages have been reflected in our loan growth and continued high participation rates."
The bonds are backed by the VRA's entire existing portfolio of direct loan payments, which have an outstanding principal amount of $720 million. The bonds are also backed by several layers of security, including the 2008 loan repayments, a subordinate debt service fund, a subordinate claim on the general reserve fund, and interest income from various other funds.
The pledge of the entire clean-water SRF portfolio creates greater credit diversification, increased debt service coverage, and "extraordinary" default tolerance, according to Bailey.
Fitch Ratings said the AAA rating on the senior and subordinate clean-water SRF is based on "VRA's strong management of the CWSRF program and adequate protection against excessive leveraging."
"The pledge of the direct loans, which have an outstanding principal amount totaling $720.7 million, significantly increases borrower participation to 133 from 35 one year ago," Fitch said. "In addition, the direct loans reduce the portfolio's single borrower risk."
Fitch said the overall credit quality of the program remains strong with 84% of outstanding loan principal to borrowers that are estimated to have investment-grade characteristics.
In addition, the VRA has a state-aid intercept feature that allows the agency to intercept the state aid of borrowers that have defaulted on general obligation or revenue-backed debt, which provides additional bondholder protection,.
Bailey said, however, that there has never been a local bond default in the history of the VRA.
The authority is also poised to receive about $77 million from the federal stimulus package. Bailey said the agency has had project applications from localities across Virginia that add up to about 20 times the VRA's expected stimulus funds.
"There are 290 applications for projects that totaled about $1.9 billion," Bailey said, adding that the project selection process will be decided next month.
Meanwhile, the VCBA is poised to bring about $392 million of bonds to market in a negotiated deal with a retail-order period Monday with institutional pricing to follow on Tuesday. The deal includes $287 million of Series 2009A educational facilities revenue bonds and $19.6 million of Series 2009C educational facilities revenue refunding bonds, as well as the agency's first-ever series of federally taxable bonds, $83.4 million of Series 2009B, because some projects did not qualify for tax-exempt status.
"We are doing a taxable component because some of the projects have some research facilities in them or corporate affiliations that caused them to be ineligible for tax-exempt financing," said Evy Whitley, Virginia's director of debt management and secretary to the VCBA.
The bonds are backed by a direct state allocation for projects that were designated by the legislature last spring. Whitley said she expects the state appropriation-backed debt to be well-received in the market.
Ratings for the bonds were not yet available by press time yesterday.
Barclays Capital is senior manager on the deal. Citi is co-senior manager. BB&T Capital Markets, Jackson Securities, Ramirez & Co., and Wachovia Securities round out the underwriting team.
First Southwest Co. is financial adviser. Troutman Sanders is bond counsel. Underwriters' counsel is McGuireWoods.