ATLANTA The Tennessee Housing Development Agency will sell $100 million of home mortgage revenue bonds beginning Tuesday in a deal that should be of interest to in-state retail buyers because a chunk of the issue is not subject to the alternative minimum tax.
Tennessee does not have an individual income tax and being able to attract more buyers by offering non-AMT bonds is a benefit for the THDA one that the agency had not been able to take advantage of in its most recent deals.
Morgan Keegan & Co. is book-runner and will offer the bonds to retail investors on Tuesday. The deal will then be opened up to institutional buyers on Wednesday. CSG Advisors is the financial adviser and Kutak Rock is bond counsel.
The deal includes roughly $82.5 million of Series 2005-1A bonds that are subject to the AMT and about $17.5 million of Series 2005-1B bonds that are not. About $71 million will be new money, with the remaining $29 million used to refund outstanding debt.
Series 2005-1A includes term bonds that mature in 2025, 2030, 2035, and 2036. The term bond maturing in 2035 is a premium planned amortization-class bond, a type the housing agency began selling in 2003. They have a shorter average life, which helps keep yields down, said chief financial officer Ted Fellman.
The non-AMT Series 2005-1B bonds include serials and a term maturity. The serials mature from 2007 through 2017, and the term bond matures in 2019.Fellman said that the agency did not offer non-AMT bonds in recent deals because there was not enough capacity to offer a sufficient amount of them.
We had been preserving our non-AMT, he said. As weve done more refundings, weve built up more of our non-AMT stock.
Fellman explained that the THDA has a draw-down note program with Morgan Keegan that allows it to preserve its bonding authority. Those notes are typically redeemed when the agency does a refunding.
Fellman said THDAs deals have traditionally gone over well with investors because of relatively strong ratings. The bonds are rated Aa2 by Moodys Investors Service and AA by Standard & Poors. Fitch Ratings did not rate this deal.
Rating agency analysts have cited the THDAs strong asset-to-debt ratio as a strength because it provides security that the program can sustain significant losses on defaulted mortgage loans without any disruption to debt service payments.
Fellman said the Housing Development Agency has increased the amount of debt it will be offering each year because of an increase in loan demand. He noted that now the agency will likely sell about $100 million of debt a year versus the roughly $60 million to $75 million that it had been selling.
With the higher amount, the goal is to have enough funds to cover at least three to four months worth of loan production.
