WASHINGTON - Three more Midwestern issuers have said that they can redeem Build America Bonds issued in 2010 because their subsidy payments from the federal government have been reduced due to sequestration.
The issuers -- Shoreview, Minn.; the Independent School District No. 832 based in Mahtomedi, Minn.; and the Rocky River City School District in Ohio - recently disclosed that they have BABs that are eligible for redemption in event notices filed with the Municipal Securities Rulemaking Board's EMMA system.
Under the BAB program, issuers could issue taxable bonds in 2009 and 2010 and receive subsidy payments equal to 35% of their interest costs. However, the subsidy payments were reduced by 8.7% in part of fiscal 2013 and are being reduced by 7.2% in fiscal 2014, which ends on Sept. 30, because of federal spending cuts known as sequestration. Sequestration for direct-pay bond subsidies and other mandatory spending is currently set to last through fiscal 2024.
The reductions have led a number of issuers, particularly in the Midwest, to redeem their BABs or say that their BABs are eligible to be redeemed. The three issuers who most recently disclosed that they can redeem their BABs said in their event notices that the reductions of their subsidy payments are extraordinary events that trigger the extraordinary redemption provisions in their bonds' official statements. The provisions allow the bonds to be redeemed at a price of 100% of the principal amount being redeemed plus accrued interest.
Shoreview said that it can redeem its BABs maturing in 2016 and later. The ISD No. 832 said it can redeem its BABs maturing in 2019 and later, which is all of them. The governing bodies of the Minnesota issuers haven't taken action to redeem their BABs, but have started proceedings that could lead to them doing so. "The determination to proceed with a redemption will depend on market conditions and other factors," the issuers said in their event notices.
The Rocky River school district said it can redeem any or all of its BABs, but it said it has not yet decided whether it will do so.
Shoreview, a city about 10 miles north of Minneapolis and St. Paul, issued $5.62 million of series 2010A bonds and $2.72 million of series 2010B bonds that were designated as BABs. The issues were sold in two separate competitive sales at different times during 2010. Proceeds of the 2010A bonds were to be used to finance an addition and improvements to the city's maintenance center, and proceeds of the 2010B bonds were to be used to finance street improvements and utility projects, according to bond documents.
A syndicate managed by Northland Securities underwrote the 2010A bonds, and United Bankers' Bank purchased the 2010B bonds. For both deals, Springsted Inc. was the city's financial advisor and Dorsey & Whitney LLP was bond counsel.
The ISD No. 832 is headquartered in Mahtomedi, which is about 15 miles northeast of the Minneapolis-St. Paul metropolitan area. The district issued $45 million of BABs in 2010 and they were to be used to finance the purchase of and improvements to school facilities. An underwriting syndicate managed by BMO Capital Markets GKST Inc. purchased the bonds. Springsted was the district's financial advisor and Dorsey & Whitney was bond counsel, according to bond documents.
The Rocky River City School District, which is near Cleveland, issued $28.5 million of BABs in 2010 to finance the construction and renovation of school district facilities and improvements to the buildings' sites. RBC Capital Markets Corp., Fifth Third Securities, Inc., and Stifel, Nicolaus & Co. underwrote the bonds, and Squire Sanders & Dempsey, now Squire Patton Boggs, was bond counsel, according to the official statement for the bonds.