CHICAGO — Top-rated Hennepin County, Minn., will competitively sell $128 million of general obligation debt today in a deal that will tap both the Build America Bond and recovery zone economic development bond programs.
The deal is comprised of three series: $49 million of tax-exempt GOs, $42 million of taxable BABs, and $37 million of taxable RZEDs. Public Financial Management Inc. is serving as financial adviser and Dorsey & Whitney LLP is bond counsel.
The RZEDs, which provide a direct-pay 45% interest rate subsidy from the federal government, mature from 2025 through 2035; the tax-exempt piece matures serially through 2020, and the BABs mature from 2021 to 2029, according to county chief financial officer Dave Lawless.
Hennepin officials expect strong interest and record low rates for the high-grade paper given current market rates. “We are hoping to get an all-in rate under 3% with the federal subsidy included,” Lawless said.
The county will use proceeds of the tax-exempt and BAB tranches to finance various projects in its capital program, and the RZEDs will finance a portion of the government’s share of a $100 million replacement bridge across the Mississippi River. The county received a $27 million allocation under the stimulus program and secured another $10 million from Minnesota.
All three rating agencies affirmed Hennepin County’s triple-A ratings on $650 million of outstanding GOs ahead of the sale. The county benefits from a diverse economy and tax base with a 2009 market value of $142 billion, a stable housing market, a favorable debt profile, and conservative fiscal management that has led to healthy reserve levels, Fitch Ratings wrote.
The county struggled with negative operating results in 2008, but ended 2009 with a larger-than-expected general fund operating surplus of $10.3 million after cutting departmental costs and reducing employee expenses.
Although Hennepin has struggled with cuts in state aid as Minnesota tries to keep its budget balanced, its undesignated general fund balance in 2009 was $115 million, or 22.5% of expenses. Officials are projecting a strong operating surplus in the general fund and human services fund this year as revenues have come in above budgeted levels. Other funds are expected to break even or post modest surpluses.
The county has weathered the recession better than many governments and its economy is showing signs of improvement. The local economy has outperformed the state and nation with an unemployment rate in June of 6.6%, down from 8.4% last year.
The Hennepin County Board recently approved transferring its $40 million federal allocation of recovery zone facility bonds to the Bloomington Port Authority, which is putting together a financing package to aid in the development of a $115 million, 500-room hotel to support the Mall of America.
The allocation of private-activity bonds will help jump-start the project, which had been on hold due to the tightening of private credit. Construction is expected to begin later this year. The mall owners hope later to also expand the massive mall.
Lawless said board members had hoped to fund other qualified, private projects but none were shovel-ready and commissioners feared losing the authorization that expires at the end of the year.
