Wisconsin Foxconn plant offers opportunity for bond underwriters

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CHICAGO – Underwriters interested in participating in about $366 million of bond issues planned by Mount Pleasant and Racine County as part of the incentives offered to land a $10 billion Foxconn Technology Group plant in southeastern Wisconsin have until Friday to submit proposals.

As part of development agreements signed in December “the village and county will provide the financing necessary to pay the costs of public improvements, land acquisition and other expenditures necessary to support the project,” according to the request for proposals.

The village is tentatively planning a $56.4 million sewerage system revenue bond anticipation note. The county is planning a $43.1 million taxable bond anticipation note and $124.2 million taxable general obligation refunding deal. An additional $142.5 million tax-increment financing issue is planned through the village’s community development authority.

The county is also planning a $33.2 million GO development bond issue but it would be sold competitively.

All of the deals with the exception of the $124.2 million GO issue are expected to sell in June. The long-term GO deal will sell in 2019.

Ehlers & Associates Inc. is municipal advisor to the village and PFM Financial Advisors LLC is advising the county. The campus will house a 20 million square foot facility for the Taiwanese manufacturer’s production and distribution of liquid crystal display panels. The site is home to a TIF district established last November and an Electronics and Information Technology Manufacturing Zone is located in the TIF.

“The municipalities expect that tax increments collected by the district, along with special assessments levied for improvements installed within the district to benefit Foxconn, will be sufficient to pay debt service associated with all obligations issued in conjunction with the project,” the RFP document says.

The TIF’s incremental valuation must achieve $1.4 billion by 2023 and be maintained through 2047 with the company on the hook for any revenue shortfall in the valuation.

The state’s agreements with Foxconn as part of an incentive package allows it to put its moral obligation behind up to 40% of a local government’s “aggregate municipal obligation issued to finance costs” related to the project’s development within the EITMZ district.

The TIF bonds are expected to mature by 2048 and would carry the state’s backing. Interest on the bonds is expected to be exempt from both state and federal taxes. The state exemption is extended to only limited forms of borrowing statewide. Quarles & Brady LLP is the village’s bond counsel.

The village’s sewage BANs are expected to eventually be refunded in 2020 with proceeds of a clean water fund loan. The county’s taxable BAN size could be cut if Foxconn provides funding and the interim financing would later be refunded with the county’s taxable GO long-term bond issue in 2019. The taxable long term GO issue would mature in 2039.

Underwriters are expected to be chosen by mid-March. The village and county may select a single firm as the underwriter/lead manager for all the obligations placed through negotiated sale or may select two or more underwriters and rotate lead manager assignments, according to the RFP documents.

Racine County took a rating hit ahead of its sale late last year of $79 million in notes tied to the project which has been trumpeted by Wisconsin Gov. Scott Walker as an economic boon for the state when it was announced last July in Rose Garden ceremony.

Moody’s Investors Service lowered the county’s general obligation rating to Aa2 from Aa1 when it assigned its top MIG 1 rating to the December note issue that is funding land acquisition. The outlook is stable.

The downgrade “reflects current and anticipated growth in the county's direct debt burden and likely growth in its overlapping debt burden tied to borrowing in support of” the Foxconn project, Moody’s wrote. “The county's rising debt burden is balanced by its very healthy financial position, moderate revenue raising flexibility, and large tax base.”

Racine County is north of the Illinois border, about 30 miles from Milwaukee. It has a population of 195,000 and a tax base of $14.2 billion. More rapid growth in the county’s debt burden or overlapping debt burdens could drive further credit deterioration, Moody’s said.

Racine County and Mount Pleasant’s developer agreement provides $764 million in incentives.

“The protections and guaranties outlined in this agreement ensure Racine County taxpayers will benefit from this unprecedented development,” County Executive Jonathan Delagrave said in a statement after the downgrade.

The project has been billed as the largest economic development project in the state’s history. It’s also the largest subsidized incentives package ever awarded by a state.

Walker offered a $3 billion tax incentives package for the complex that could employ up to 13,000. Construction is expected to begin this year with completion targeted for 2023.

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