CHICAGO — St. Louis County will competitively sell $20 million of tax-exempt special obligation bonds and taxable recovery zone economic development bonds to finance construction of a new health care campus in Berkeley.
About $3.2 million of the bonds, which mature through 2016, will be sold as tax-exempts. The remaining $17.1 million will be issued as taxable RZEDBs that will mature from 2016 through 2035.
The deal marks the county’s first use of recovery zone economic development bonds, which provides a 45% direct-pay interest subsidy from the U.S. Treasury Department.
The county’s total allocation of the federal stimulus bonds is $40 million.
Officials are planning to return to the market later this month with the remaining $23 million to finance a new expressway that leads to a new residential development project.
Columbia Capital Management LLC is financial adviser. The special obligation bonds carry a rating of Aa1 from Moody’s Investors Service and AA-plus from Standard & Poor’s.
Both rating agencies maintain a triple-A on the county’s outstanding general obligation debt.
“It’s a pretty straightforward transaction — the only wrinkle was trying the best we can to figure out the potential economic benefits of the recovery zone bonds and how that compares to [Build America Bonds] and tax-exempts,” said Jeff White, senior vice president with Columbia Capital Management.
“The county is fortunate enough to have a very high bond rating, so the tax-exempts remain pretty economical for those issuers at the short end of the schedule,” White said.
“The taxable market is very squirrelly right now, with the Greek debt market and the oil spill in the Gulf. With a competitive sale that’s structured at the outset, there’s a lot of educated guessing about where the market is going to be that day,” White added.
The bonds are secured by the county’s annual appropriation pledge. Officials expect to pay debt service from a property tax levy that supports its health department.
If the revenue proves insufficient, the county can dip into any other funds to pay debt service.
Proceeds from the bonds will finance construction of a new public health care campus located on the site of an aging heath facility, part of which will be demolished.
“The replacement of the facility has been on the county’s capital agenda for a long time, and the recovery zone program gave us the incentive to go ahead and try to find a mechanism to finance it this year,” White said.
Construction starts early next year and the project is scheduled to be finished by 2012.