CHICAGO -St. Louis will enter the market early next month with $44 million of new-money leasehold revenue bonds that will carry the city's highest rating in 35 years, Comptroller Darlene Green said yesterday.
The deal includes two series, one for nearly $25 million that will finance a range of capital projects including improvements to the city's juvenile detention center. The second for $19.5 million will help cover the city's annual required contribution for fiscal 2008 to its police and firefighter pension funds.
The bonds will sell during the first week of June with Siebert Brandford Shank & Co. serving as book-runner and Citi and JPMorgan as co-senior managers. Rebecca Perry-Glickstein of P.G. Corbin Group Inc. is financial adviser and Armstrong Teasdale LLP is bond counsel.
The St. Louis Municipal Finance Corp. is serving as the issuer for the bonds, which are secured by the city's pledge to annually appropriate the amount needed to make its lease-rental payments that cover debt service. The city will use revenues from its new half-cent public safety sales tax to repay the pension payment series and general funds on the other series.
The city won upgrades from Fitch Ratings and Standard & Poor's. Moody's Investors Service rates the city's general obligation and lease-backed bonds A3 with a positive outlook.
Standard & Poor's upgraded the city's issuer credit rating to A-plus from A and its appropriation and leasehold revenue bonds to A from A-minus. Fitch upgraded the GO credit to A from A-minus and the leasehold and appropriation credit to A-minus from BBB-plus.
The city has $610 million of lease-supported debt and just $51 million of GO debt. GO issuance must win voter approval.
The upgrade to A-plus marks the city's highest rating since 1973, Green said in a statement.
"This is tremendous news for the city of St. Louis and its taxpayers, especially during this time of market volatility when most other cities are experiencing financial troubles related to auction- and variable-rate debt," the comptroller said. All of the city's debt is fixed-rate. "While I believe this financial approach is prudent at any time, it is critically important during periods of turbulent market activity and disruption that clearly exists today."
Analysts attributed the upgrade to the region's diverse economy, the city's strong tax base growth of 57% between 2002 and 2007, good financial management, and limited plans for new debt issuance.
St. Louis' finances have been on the mend since fiscal 2004 due to conservative management and improving collections of sales and franchise taxes. The general fund balance for fiscal 2007 totaled $74.7 million, or 18% of expenditures, and officials expect to break even this year.
Downtown development has helped reverse population losses with a modest gain of 2,570 - for a total of 348,189 residents - since the 2000 Census. Officials have said over the last five years more than $2 billion of projects have been completed downtown, with a focus on convention and tourism and $1.3 billion in neighborhoods. Another $4.9 billion are planned in the city.
The resolution of pension funding issues has also helped shore up St. Louis' balance sheet. The city last year sold $143 million of debt to fund additional pension payments to its police and firefighters funds as required under a Missouri Supreme Court decision that sided with the pension funds.
To help cover its pension obligations, the city extended to wireless providers its 7.5% gross receipts telecommunications tax which should raise $7 million more annually. In February, it won voter approval for a half-cent sales tax dedicated to public safety that will generate about $18 million more annually.
The police, fire, and general employee pension funds are in strong shape funded at between 88% and 93%. The city's other post-employment benefits are limited to health care for police and considered modest.
Some of the factors that offset St. Louis' positive credit profile include a high unemployment rate of about 7% last year compared to the state average of 5% and well-below average income levels in addition to a moderately high debt burden.
The city is also working on a roughly $250 million airport revenue bond sale for the fall. Lehman Brothers was selected as book-runner.
