BRADENTON, Fla. — Tampa, Fla., this week is marketing $20 million of taxable bonds to pay workers’ compensation claims in a transaction that could be a model for other deals.
The bonds are being sold by Morgan Keegan & Co., which approached the self-insured city about doing the deal. It is the first transaction of its kind for Morgan Keegan, said managing director Jon Eichelberger.
Bond proceeds will be used to make one-time, up-front settlements of the future worker’s compensation claims of certain injured city employees.
Tampa expects to achieve up to $4.5 million in present-value savings over the 20-year life of the bonds, based on claim payments that have been identified for potential settlement, according to Sonya Little, the city’s chief financial officer.
Little worked as a financial advisor with Public Resources Advisory Group before leaving the firm earlier this year to become Tampa’s CFO.
“From the city’s perspective, [the offering] was analyzed and evaluated for a while, and deemed to be beneficial, so we’re proceeding with the financing,” Little said. “The taxable rates are also at very low levels and that makes it even more viable at this point to consider this deal.”
The transaction is expected to be structured with serial and term bonds, which will price Wednesday or Thursday.
“Because of our strong credit quality, we believe that there will be interest and demand for the bonds,” Little said.
The bonds are secured by the city’s covenant to budget and appropriate certain legally available, non-ad valorem revenues to pay debt service.
“It’s a unique opportunity for [Tampa] to take advantage of an innovative transaction that will dramatically reduce their exposure over the life of the claims,” Eichelberger said, adding that Morgan Keegan selected Tampa to do the firm’s first transaction because the city is a strong credit.
While Tampa’s offering is not the first of its kind, statistics show that bonding for worker’s compensation claim payments is not frequent, according to Thomson Reuters.
However, since many local governments are self-insured there is potential for the sector to grow.
Transactions should be scalable to the needs of any issuer that is self-insured, and authorized by law to settle worker’s compensation claims up front, Eichelberger said.
“Any self-insured issuer would definitely be a candidate,” he said. “I think the prospects are out there.”
Tampa’s bonds are rated AA-minus by Fitch Ratings and Aa2 by Moody’s Investors Service.
Analysts from both agencies said the city, located on the west coast of Florida with 335,000 residents, has a history of conservative finances, a broad, regional economy, and low debt burden.
Challenges facing the city include budget pressures as the recession lingers and a high unemployment rate, which was 10.3% in October for the Tampa-St. Petersburg-Clearwater Metropolitan Statistical Area.
Nabors, Giblin & Nickerson PA is bond counsel. Bryant Miller Olive PA is disclosure counsel. GrayRobinson PA is underwriters’ counsel.