As president of the recently created Public Housing Finance Corp. board, Eric Strong oversees the 37 Alabama housing authorities that banded together in July to create the first-ever bond pool approved by the U.S. Department of Housing and Urban Development.
That's in addition to Strong's duties as the head of the Jefferson County Housing Authority and its 2,500 units, and as the head of the Jefferson County Assisted Housing Corp. administering about 30,000 units under Section 8 contracts in Alabama and Mississippi.
But it was the first-time sale of $123.7 million of capital program revenue bonds securitized with future HUD capital fund grants in a competitive sale, leading the way for others to follow those 37 Alabama housing authorities, that captured The Bond Buyer's Southeast Regional Deal of the Year Award.
"When the concept was originally brought to the State Association of Housing Authorities in Alabama, and to the local HUD office, a couple of things became readily apparent," said Strong, who also serves on the state authority's capitalization committee.
"In the state of Alabama, the vast majority of housing authorities are small," he explained. "It would never make economical sense for those small and even medium-size authorities to access the bond market individually, so the bond pool concept suited what Alabama and the housing authorities needed."
With backlogged capital needs, Strong said the pool gave Alabama housing agencies a way to address immediate needs like repairing or replacing roofs, while also addressing marketability and occupancy issues.
With some housing units 30 to 40 years old and in need of repairs or upgrades, it had become difficult to compete with newer HUD-funded or subsidized projects, Strong said.
Annual capital funds from HUD generally are not enough for small authorities to do large projects in any given year, so work is spread out over several years, resulting in higher costs. The new pool allowed small agencies to leverage funds and accomplish more, according to the co-financial advisers, Phil Dotts with Public Finance Associates and Doug Turner with Censeo Inc.
The idea of a pool program was offered to public housing authorities around the state with HUD's blessing.
"The Birmingham HUD Office is pleased that an Alabama housing group came together to form the Public Housing Finance Corp. to facilitate this pooled transaction for multiple Alabama Public Housing Agencies, allowing some PHAs greater access to the capital markets," said Cindy Yarbrough, field office director for HUD in Birmingham.
"We believe this product paves the way for other pooled transactions and opens the door to many PHAs that might not otherwise participate in major rehabilitation programs," Yarbrough said. "HUD is proud of its partner's success and appreciates the recognition they received as the Southeast regional winner of The Bond Buyer's Deal of the Year Awards."
The Alabama deal was patterned after the Chicago Housing Authority's $291 million deal in 2001, the first deal securitizing federal public housing capital fund grants. It was The Bond Buyer's inaugural Deal of the Year overall winner in 2002.
While the Chicago deal helped provide a foundation for others to follow, a requirement of winning a Bond Buyer award, the Alabama deal was unique in its own right.
It was the first HUD pool using capital funds, and each housing agency was only liable for its proportionate share of debt service instead of being cross-collateralized in a traditional pool structure, according to Matt Lewin with Chapman & Cutler, the Alabama transaction's disclosure counsel, who also worked on the Chicago deal.
Bond counsel for Alabama's transaction was Miller, Hamilton, Snider & Odom LLC.
Because of different maturities, the Alabama housing authorities' pools were structured to competitively sell in two series. Both were insured by Financial Security Assurance Inc.
About $12.1 million of capital program revenue bonds, Series 2003A with 10-year maturities, were sold by public housing authorities in Huntsville, Northport, Opelika, and Ozark.
The second issue, $111.6 million of Series 2003B capital program revenue bonds with 20-year maturities, were sold by authorities in Altoona, Anniston, Birmingham, Blountsville, Brewton, Centre, Childersburg, Clanton, Collinsville, Fairfield, Florence, Gadsden, Georgiana, Goodwater, Hartselle, Jasper, Jefferson, Lanett, Leeds, Mobile, Monroeville, Pell City, Phenix City, Phil Campbell, Piedmont, Prattville, Rainsville, Sylacauga, Tarrant, Top of Alabama, Troy, Tuskegee, and Vincent.
The bonds were senior obligations payable through HUD's capital fund program to construct, modernize, renovate, or rehabilitate public housing developments, with each authority leveraging approximately 25% of its annual appropriation from HUD and sharing costs through the pool, making the trip to market more cost-effective.
The strong pledge of HUD funds was a major factor in getting underlying ratings very close to those achieved by the Chicago Housing Authority two years ago, which were AA-minus from Fitch Ratings, AA from Standard & Poor's, and Aa3 from Moody's Investors Service.
The Alabama deal earned an Aa2 for the Series 2003A bonds and an Aa3 for the Series 2003B bonds from Moody's. Standard & Poor's gave both series its AA-minus rating. Fitch did not rate the Alabama transactions.
Analysts said the new credit structure developed for the Alabama housing authorities helped mitigate some potential volatility. For example, each agency is required to maintain property insurance in case of a disaster, since a loss of units would have a greater affect on a small authority's ability to pay debt service than on a large one's.
And the structure provided for an additional layer of oversight through the creation of the nonprofit Public Housing Finance Corp., which is governed by seven Alabama public housing authorities. The corporation, which Eric Strong oversees, must regularly inspect properties and insure compliance with bond covenants.
"Right now most people are in the process of hiring architects and developing plans and specifications to put out to bid," Strong said in a recent interview updating progress on the projects. "We are still in that intensive paperwork process before any work can begin."
Most of the bond proceeds will be used to modernize and renovate 21,625 units in existing public housing developments.
