The Syracuse Industrial Development Agency plans to sell $322.6 million of taxable and tax-exempt revenue bonds next Thursday to finance an expansion of the Carousel Center mall in Syracuse, N.Y.
The fixed-rate bonds will be backed by payments in lieu of taxes, or PILOTs, that will flow to the city during the life of the debt. The transaction will be marketed in two series — the $226.9 million tax-exempt Series 2007A bonds are expected to mature in a single term in 2036 and the $95.7 million of taxable Series 2007B bonds are expected to mature in 2019 and 2028. The final structure will be decided on closer to the sale, said Frank Mahoney, a managing director at senior managing underwriter Lehman Brothers.
Lehman Brothers and Citigroup Investment Banking are co-book-running senior managers. Hiscock & Barclay LLP is bond counsel. XL Capital Assurance will insure the bonds.
The expansion consists of a structure that will be attached to the existing mall and add 848,000 square feet of leaseable space. The shopping center is owned by Syracuse developer Robert Congel’s Pyramid Cos. and currently has 1.6 million square feet of gross leaseable space.
The expansion is part of the ambitious, 140-acre Destiny USA project, which would include the Carousel Center mall and 3.25 million square feet of new leaseable space. The project is to be built in several phases. The IDA has approved the project and a bond authorization up to $2.2 billion. The bonds will be backed by PILOTs from the existing shopping center rather than the new development.
“We expect we will issue bonds as the project progresses in phases, and as a phase is completed, the legislation and the agency’s authorization contemplates that the PILOT payments for a particular phase could secure debt for the next phase,” said Jean Everett, an attorney at Hiscock & Barclay.
The city and Onondaga County will split a $60 million project fee from the bond sale that will be paid over 11 years to finance a hotel and convention center, said Destiny USA spokesman David Aitken.
Fitch Ratings assigns its AA-minus rating.
The rating was based on the shopping center’s competitive position and strong operating performance and the legal structure which guarantees that the PILOTs are paid to the IDA before the mortgage is paid and any money is release to the company, said Fitch senior director Jessalynn K. Moro.
“It’s important to note that although the PILOTs are technically coming from one asset, which is the mall itself, the payments are passed through to the tenants, so in each of the tenants rents, PILOT payments are embedded,” she said.
Two tenants have disputed their legal obligation to pay PILOTs in a pending lawsuit.
Moody’s Investors Service assigns the bonds its Baa3 on a corporate scale.
The rating agency used a corporate scale because the risk to bondholders more closely resembles the risks of corporate debt issued in the taxable market, said Maria Matesanz, a senior vice president at Moody’s.
“The performance of that Carousel Center depends on what other retail venues develop in the area, what the economy is doing — it’s sort of dependent on the enterprise functioning as a successful enterprise,” she said.
Standard & Poor’s analysts tracking this issue were unavailable for comment by press time.
The IDA is an infrequent borrower. The bond issue will be more than the $303.7 million the agency has sold in the past 10 years combined, according to Thomson Financial data.
