ALAMEDA, Calif. — Idaho is a state of few Build America Bond deals and few competitive bond offerings.
Jefferson School District No. 251 plans to buck both those trends today with a $25 million competitive general obligation BAB sale.
It will be the first competitive BAB sale in the state, according to Alan Westenskow, vice president at the district’s financial adviser, Zions Bank Public Finance. It will only be the fourth BAB sale from Idaho overall, and the first by a school district, according to Thomson Reuters.
It will only be the fourth Idaho municipal bond sale of any kind done on a competitive basis since the beginning of 2008. Westenskow said Zions has advocated the advantages of competitive sales for its school district clients in Idaho, where a state guaranty program provides districts with a Aa2 rating, which is expected to improve when Moody’s recalibrates in the coming weeks.
The Jefferson district has an A3 underlying rating from Moody’s that has not yet gone through recalibration.
“We saw the value of a competitive sale,” Westenskow said. “Every school bond issue we’ve been involved in has been done as a competitive sale and we’ve had great results.” That also applies to BABs. Zions has advised three such competitive sales for clients in Utah, he said.
Using Ipreo’s Parity platform, underwriters can bid on whatever mix of traditional tax-exempt and taxable BABs they wish, Westenskow said.
“We don’t have a preference as long as the issuer’s getting the lowest overall cost,” he said. “We’re anticipating getting a strong bid response.”
It’s not easy for school districts to issue debt in Idaho — the biggest hurdle is the requirement of achieving a two-thirds supermajority from voters in a referendum. The Jefferson district’s $45 million GO authorization was approved in October with more than 73% of the vote.
That allowed the district to take advantage of Idaho’s decision to offer its $37 million qualified school construction bond allocation in $5 million chunks on a first-come-first-served basis.
After the 2009 bond election, the district sold its $5 million of tax-credit QSCBs at an effective borrowing cost of 1.51%, Westenskow said.
Zions also worked with the district to wrap debt service for the new issuance around its existing debt structure to ensure property tax rates would not go up, making the bond authorization more palatable to voters.
The district made a strategic choice not to wait for the coming recalibration of the Moody’s ratings.
“We figured it made sense to get to the market sooner than later,” Westenskow said. As it is, the winning bidder is likely to have the option of closing the deal under the recalibrated rating structure if it wishes, he said. Moody’s is the sole rater for both the state guaranty program and the district’s underlying rating.
“What I think is happening is the investment community is already building that in,” he said of the recalibration. “Our sense is it won’t make too big a difference.”