Two bond-issuing authorities in Virginia entered into a voluntary closing agreement with the Internal Revenue Service to preserve the status of $74.3 million of bonds after one of them sold its waste-to-energy facilities, which were financed with the bonds, to Wheelabrator Portsmouth Inc.
The voluntary closing agreement was disclosed by the Virginia Resources Authority in a material event notice filed late Tuesday with the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access system. Under the agreement, the VRA, Southeastern Public Service Authority, and Wheelabrator agreed that the facilities will be operated as a “qualified solid-waste disposal facility” so that the bonds qualify as exempt facility private-activity bonds.
The SPSA agreed to seek a volume cap allocation for the bonds from the governor. Private-activity bonds are subject to state volume caps that are based on state population estimates. Currently the caps are the greater of $90 per capita or $273.775 million.
In the lengthy material event notice, the VRA, which purchased some of the SPSA’s debt under its pooled financing program, stated that the SPSA completed the $150 million sale of its facilities — a refuse-derived fuel plant and a power plant — to Wheelabrator on April 29 and used the proceeds to redeem $140.2 million of bonds, more than half its $218.2 million of outstanding tax-exempt debt.
The SPSA had requested VRA’s consent to sell the facilities, which VRA’s board of directors granted on March 30.
The SPSA voluntarily sought the closing agreement with the IRS. The IRS said that since the facilities were changing from public to private ownership, the bonds issued by the SPSA to finance capital improvements to the facilities, or by the VRA to purchase SPSA debt for the facilities, could only remain tax-exempt if they were exempt facility bonds that received an allocation under the state’s private-activity bond volume cap.
To appease the IRS, Gov. Bob McDonnell signed off on a volume cap allocation of $74.3 million, which covered both the affected SPSA and VRA debt sold between 2001 and 2009, VRA executive director Sheryl Bailey said yesterday. The private company also agreed to operate the facilities in compliance with the definition of a “qualified solid-waste disposal facility” as outlined in the tax code, for as long as tax-exempt bonds tied to the facilities remain outstanding.
The facilities were governmentally owned when SPSA acquired them and until they were sold. No payment was required as part of the VRA and SPSA agreement with the IRS, Bailey said.
She said SPSA’s actions have resulted in a 65% deduction in the amount of SPSA debt the VRA holds. As a condition for its approval of the sale, VRA stipulated that the eight owner municipal owners of SPSA must make general obligation guarantees of the remaining $47 million, removing the risk from VRA’s ledger. A guaranty agreement to that effect was enacted on April 29. The SPSA has been seeking to reduce its debt burden since the beginning of the housing bust and economic downturn.