BRADENTON, Fla. - Weather permitting this week, Sarasota County, Fla., plans to sell $72.6 million of infrastructure sales surtax revenue bonds.
The offering will be the first of nine tranches for a new program that ultimately will lead to the issuance of $201 million of debt to speed up the construction of projects designed to kick-start the area's lagging economy.
Retail pricing is expected on Wednesday, with institutional sales Thursday.
Since several major tropical storms and hurricanes could affect various parts of Florida this week, the county may need to be flexible and delay pricing if conditions warrant, Sarasota County debt manager Richard Gleitsman said on Friday.
Bond proceeds, including this week's Series 2008A bonds, will pay for transportation, parks, libraries, and environmental projects to be completed over four years, all part of a voter-approved, economic stimulus program that has received wide recognition and support, even from prospective investors.
"People have been asking when can they purchase these bonds," Gleitsman said. "Maybe it's because this program has gotten more exposure about the fact that these bonds are to fast-track these projects, and people feel it's a worthwhile effort given the state of the economy and they want to be part of it."
Like a previous bond issue the county did in March, the debt being sold this week will not be insured because the cost does not make economic sense, according to Gleitsman. He said the county always does an insurance analysis for its bond issues, and the cost for this week's sale showed triple-A bond insurance was "very, very expensive" and would have cost $2.5 million in additional interest over the life of the bonds.
Berkshire Hathaway Assurance Corp. wanted 125 basis points for insurance, while Financial Security Assurance Inc. wanted 70 basis points, Gleitsman said.
"By comparison, when there were almost a dozen triple-A municipal bond insurers in the market between 2005 and 2007, we issued several bonds and paid in the range of 14 basis points to 39 basis points for insurance," he pointed out. "So even the 'low' quote of 70 basis points is almost twice as costly as it was previously. And because of the perceived weaknesses of municipal bond insurers in the market right now, insuring with one of them up to a triple-A won't bring the same degree of trading differential that it did back then."
So the 2008A bonds will sell on their underlying ratings, which are AA from Fitch Ratings and Standard & Poor's, and Aa3 from Moody's Investors Service, and Sarasota officials are hoping to achieve all-in interest costs in the low 4% range.
The deal will be structured with maturities over 15 years to match the 2024 expiration of a one-cent infrastructure sales tax that the county will start collecting in September 2009. Because of the delay in collections, the first year's interest will be capitalized and serial maturities from 2010 to 2024 will provide level debt service.
Although the county has levied the one-cent sales tax since 1989, and it has been extended several times by voters, this week's sale is the first securitization of the tax.
Sarasota County, which is on Florida's west coast south of Tampa, originally planned a $300 million debt-driven economic stimulus program. However, it had to scale it back - at least for now - because sales tax revenue is coming in lower than anticipated.
"We didn't want to over-leverage the credit," Gleitsman said, adding that if sales tax collections pick up, there could be more capacity in the bond program.
While recognizing the slowdown in tax collections, the downturn of the housing market, and impact of recent tax reform measures, all three rating agencies said Sarasota County's rating on the bonds reflected strong financial management, its wealthy population, and low to moderate debt levels.
After this week's scheduled sale, the county expects to bring a series of smaller fixed-rate issues to market. The amounts of project proceeds to be bonded, not including issuance costs or cash debt service reserve funding, currently calls for the pricing of approximately $12 million in October, $9 million in November, $15 million in December, $14 million in January, $17 million in July, $5.4 million in July 2010, $30 million in April 2011, and $14 million in 2012.
Merrill Lynch & Co. is the book-runner on this week's transaction. Other underwriters are Citi, Raymond James & Associates Inc., and Stephens Inc.
First Southwest Co. is the county's financial adviser. Holland & Knight LLP is bond counsel.