CHICAGO – The top-rated Minneapolis-St. Paul, Minn. Metropolitan Council enters the market this week to refund some debt and raise $100 million in interim financing for its $957 million light-rail expansion line that will link the downtowns of Minneapolis and St. Paul.

The sale also includes $145 million of refunding bonds. The council will take competitive bids on Wednesday. Springsted Inc. is financial adviser and Kennedy & Graven bond counsel.

The deal offers $100 million of grant anticipation notes, $26 million of transit refunding bonds, and $119 million of waste water revenue refunding bonds. All of the bonds carry the council’s general obligation pledge which is rated AAA by Standard & Poor’s and Aaa by Moody’s Investors Service.

Standard & Poor’s also assigned its top short-term marks to the notes which mature in March 2016. Moody’s assign them only a long-term rating. The council has $1.4 billion of GO debt after the sale.

The refunding tranches – which could change in size depending on the market – are anticipated to generate between $5 million and $10 million in savings, said the council’s treasury senior manager Allen Hoppe.

Lower interest rates and a drop in negative arbitrage – which occurs due to the spreads between the new bonds and the securities being purchased to defease the existing debt -- since the council last entered the market in June prompted the refunding.

“We did a complete analysis” ahead of the last sale and the bonds now being refunding didn’t provide sufficient economical savings at the time, Hoppe said. “But the market has improved and as time passed we’ve seen the negative arbitrage drop off.”

The council was established in 1967 to manage transportation, environmental services, and long-range planning for the seven-county region that covers 188 towns and cities with a population of 2.8 million and a $267 billion valuation.

The notes mark the second tranche sold by the council ahead of its receipt of Federal Transit Administration grants for its Central Corridor project. The federal funding will flow to the council in increments through 2015.

The project relies primarily on a mix of federal, state and local funding sources including $479 million in federal grants, $284 million from the Counties Transit Improvement Board, $92 million of state aid, $66 million from Ramsey County’s rail board, and $28 million from Hennepin County’s rail authority.  A quarter-cent sales tax and a motor vehicle sales tax in five counties generate funds to help cover the local costs.

The council issued $90 million of notes for the project last year and expects to sell another $100 million next fall, Hoppe said. The light-rail line is expected to be completed before the end of 2014.

The council’s credit benefits from strong management, a substantial tax base, and strong liquidity provided by a $295 million unrestricted cash balance last year, Moody’s said. The council’s challenges include declines in valuation, a reliance on motor vehicle sales taxes to fund transit operations, and a drop in state general fund support.

“The stable outlook reflects our anticipation of the regional economy’s continuing stability and the council’s maintenance of a strong financial position despite budgetary and operational hurdles,” Standard & Poor’s said.

The council has assessed the potential impact of the looming threat of sequestration — automatic cutbacks in federal spending mandated by last year’s budget deal -- and warned it stands to lose about $8 million in funding for the light-rail line and $200,000 in Build America Bond subsidies. Though the council dislikes the looming uncertainty, Hoppe said the agency will fiscally manage.

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