The Pennsylvania Intergovernmental Cooperation Authority is seeking professional advice related to a potential $327 million variable-rate refinancing deal that would address a floating-to-fixed-rate swaption set to kick in June 15.
Applications for an underwriting-remarketing agent, financial adviser, and bond counsel are due by April 6 at 3 p.m.
Officials anticipate refinancing Series 1999 fixed-rate, special tax revenue bonds for $327 million into variable-rate mode by mid-June to better match the debt with a floating-to-fixed-rate derivative with JPMorgan, as the bank has exercised its right on the swaption.
While the authority plans on refinancing the debt, PICA executive director Uri Monson said his team is interested in hearing what other opportunities are available.
In 2003 and 2006, PICA refinanced previous fixed-rate bonds into floating rate to correspond with derivatives attached to the debt.
As of the end of February, the current mark-to-market value on the JPMorgan swaption is $63 million.
"Given the market, there may be other options to look at, which is why we want to talk to FAs and various other people to see if there are other options," Monson said. "But I would say that [refinancing] is certainly one if not the most likely outcome."
PICA entered into the swaption with JPMorgan in 2002, with the bank paying an upfront payment of $9.7 million. In the agreement, the authority pays a fixed rate and receives 62% of the one-month London Interbank Offered Rate from JPMorgan. The fixed rate changes each year, with PICA paying the highest rate in 2010, at 5.12%. The average fixed rate during the life of the swap, which ends in 2022, is 4.9%, Monson said.
The authority has $572 million of outstanding debt. Fitch Ratings and Standard & Poor's rate PICA A-plus and AA, respectively. Moody's Investors Service rates the credit A1.
State lawmakers created PICA in 1991 to help Philadelphia access the municipal market after it lost its investment-grade rating. The authority's new-money bonding capacity ended in 1996, but PICA continues to oversee Philadelphia's budgets.