DALLAS Fresh from the sale last month of $300 million of sales tax revenue bonds to finance the citys 50% share of the cost of expanding the downtown convention center, Phoenix officials will go to market Wednesday with another $300 million of revenue debt to finance the states portion of the $600 million project.
The Phoenix Civic Improvement Corp. will issue the Series 2005B Arizona tax distribution bonds, according to acting city finance director Jeff DeWitt.
The city offered the first deal, $300 million of Series 2005A bonds, on Aug. 13. That debt is supported by city sales taxes dedicated to Phoenixs 41-year-old Civic Plaza Building Fund. The largest contributors of the seven separate taxes involved include a 2% hotel-motel tax, a 0.5% tax on restaurants and bars, and a 0.5% tax on construction contracts.
Banc of America Securities LLC underwrote the 2005A bonds, which were priced to yield 4.29% at the 2025 final maturity.
DeWitt said the city decided to sell the two $300 million issues in rapid succession because of a favorable market. Even though interest rates have moved higher in recent days, Phoenix officials still view rates as very favorable.
Were still in good shape, DeWitt said. We had projections when we started that were far above where we are now, so we are happy with the market.
The Series 2005B bonds have received underlying ratings of A1 from Moodys Investors Service and AA-minus from Standard & Poors. The bonds are not rated by Fitch Ratings. They will be insured by Financial Guaranty Insurance Co.
| A rendering of the planned expansion of the Phoenix Convention Center. |
Lehman Brothers is the lead underwriter on the Series 2005B bonds. Co-managers for the deal are Morgan Stanley, Peacock, Hislop, Staley & Given Inc., Piper Jaffray & Co., RBC Dain Rauscher Inc., Apex Pryor Securities, and Samuel A. Ramirez & Co.Squire, Sanders & Dempsey LLP is the citys bond counsel.
Phoenix voters approved the $300 million of city-supported bonds for the Civic Plaza expansion plan in November 2001 with the stipulation that the state would provide another $300 million for the project. The state contribution was sought because of the expectation of statewide benefits stemming from the larger conventions and gatherings that could be accommodated in an expanded center.
We had to convince the Legislature that this project would benefit the entire state, and we were able to do that, DeWitt said.
After a special legislative subcommittee determined that the economic benefits to the state would exceed the cost of financing the project, the Arizona Legislature in 2003 approved a bill that authorized state funding for as much as 50% of the $600 million project. The legislation stipulated that the project must be completed by Dec. 15, 2008, and that any costs above $600 million would be the citys responsibility.
The states allocation of sales and excise tax revenue to the Civic Center projects debt service is a statutory distribution required by law, not an annual appropriation by lawmakers, according to DeWitt.
The state is matching the dollars that Phoenix voters approved, he said. By law, the states share will be distributed from the states sales tax revenues, and that doesnt require any action by the Legislature.
The states projections indicate the first benefits from the completed project will begin at a low level in 2009, and slowly increase over the next 20 years. The distribution of funds will match that schedule.
The bonds are structured with increasing annual debt service to nearly match the scheduled increases in allocated revenue, DeWitt said.
The deal is structured with capital appreciation bonds from 2010 to 2013 that become convertible capital appreciation bonds in 2014.
Debt service will include only the interest until 2012, and then principal payments will begin, he said. The formula used by the state to determine payments to the city calls for a first payment of $5 million in 2009, and then $10 million in 2010, $15 million in 2011, and $20 million in 2012.
The increase in payments slows down at that point, to $500,000 per year, until the annual distribution reaches $30 million in 2032. It stays at that level through 2043.
The revenue from Arizonas various sales taxes, which generated a total of $4.7 billion in fiscal 2004, supports the debt service on the Series 2005B bonds. Much of that revenue was distributed to cities and counties on the basis of population, but about $2.8 billion remained that could be used for the Civic Plaza bonds, or about 95 times coverage of maximum annual debt service.The bond proceeds are needed at this point because all the design work and engineering on the project to triple the available space at the downtown convention center have been completed, and construction work is about to begin, DeWitt said.
The first phase of the project is to be completed in 2006, with the second and final phase to be operational in August 2008. When completed, the expansion effort will add 600,000 square feet of exhibit and meeting space to the existing 300,000-square-foot facility.
The number of convention delegates attracted to the Phoenix facility each year is expected to increase from the current 135,000 to some 375,000 when the Civic Plaza is completed.
Phoenix has some strong incentives to complete the project on time and on budget, DeWitt said, noting that the state will not contribute more than $300 million to the project and then only if it is completed by Dec. 31, 2008.
Weve designed this facility around the $600 million limit, and have already booked conventions into the new space for early 2009, he said. Were on schedule, and well make it happen.
In addition to this weeks sale, DeWitt said the city is currently in discussions with rating agencies in anticipation of a planned sale of $350 million in revenue bonds by the Downtown Phoenix Hotel Corp. That entity, formed by the city in late 2004, is charged with financing a 1,000-room hotel adjacent to the Civic Plaza convention center.
DeWitt said he expects that sale to occur in the next 60 to 90 days.
