WASHINGTON — The Virginia Resources Authority on Wednesday and Thursday will sell $167.7 million of bonds to help 13 local issuers finance infrastructure projects and refund previously issued bonds.
Pricing will begin for retail investors on Wednesday followed by institutional sales on Thursday, said Brian DeProfio, the VRA’s chief operations officer.
The agency plans to sell two types of bonds. It will issue infrastructure revenue bonds that are rated triple-A by Moody’s Investors Service and Standard & Poor’s and secured by a first lien on loan payments from local issuers. The VRA expects to sell $115.96 million of infrastructure revenue bonds with $63.2 million as tax-exempt and $52.8 million as direct-pay, taxable Build America Bonds.
The second portion of the debt will be state moral obligation bonds. These are subordinate bonds that are rated Aa2 by Moody’s and AA by Standard & Poor’s. They are secured by a moral obligation pledge from Virginia. The VRA expects to sell $26.7 million of these bonds as tax-exempt and $25.1 million as BABs.
As it has done in the past, the authority split the eight underwriters into separate teams for the tax-exempt bonds and BABs.
“We found in the past that when you have these multiple products sometimes it is more efficient to have two different groups selling them,” DeProfio said.
JPMorgan and Wells Fargo Securities will be lead underwriters for the tax-exempt bonds with Bank of America Merrill Lynch and Fidelity Capital Markets. Citi will lead the BABs syndicate with Goldman, Sachs & Co., Morgan Stanley, and M.R. Beal & Co. McGuireWoods LLP will be bond counsel and Davenport & Co. financial adviser for all of the bonds.
The debt will be issued for nine local governments and four infrastructure authorities. They will allow five of the local issuers to refund their obligations with the VRA. Middleburg and Stafford County, however, will refund bonds they previously issued themselves, not through the VRA, DeProfio said. The remainder of the debt will be used for water and sewer, energy, and government building projects. The local issuers typically rely on tax or project revenues to repay the authority.
After this transaction, the agency will have 110 borrowers. The VRA can survive defaults on up to 18% of its loans and still repay bondholders, according to Standard & Poor’s. The largest borrower is Suffolk City, with 12.73% of the VRA’s outstanding $1.4 billion pooled loan program.
Last year, Virginia increased the authority’s debt limit for moral obligation bonds to $1.5 billion from $900 million. Moody’s said the moral obligation pledge is not as strong as the legal pledge for the state’s lease-appropriation debt because Virginia is required to pay debt service once funding has been appropriated for the least debt.
Additionally, if a local government is at risk of defaulting to the VRA, a state aid intercept program allows the state comptroller to withhold any appropriated funds to the government until the authority is repaid. Of the 110 VRA borrowers, 66 are covered by the intercept program, which has never been used.