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IDA members approve new bond financing

POSTED: August 25, 2011 12:54 p.m.

Effingham Industrial Development Authority members took a step Wednesday they believe will provide long-term financial support for their plans — and give them needed flexibility to entice prospects.

In a 5-0 vote, IDA members authorized a bond resolution at a special called meeting, giving the go-ahead to issue $39,995,000 in bonds. Those bonds will be used to refund the debt incurred through the acquisition of 4,500 acres of land and will include ending the financing deal with Wells Fargo.

“It puts the IDA in a much better situation,” said IDA Chairman Dennis Webb.

The IDA would have had to come up with another re-financing option in a few months anyway because of the end of its credit swaps arrangement with Wells Fargo. Wells Fargo took over the financing after its takeover of Wachovia.

But the new financing package doesn’t encumber the IDA’s land, which was a big selling point to its members.

“Number one, we amortize the debt,” Webb said. “The original financing provided for interest only payments but we had to pay a percentage of the land sales. In our ability to market land, it was a hindrance.”

The IDA owns the south tract at its Interstate 16 holdings outright. The bond package will re-finance the north tract at I-16 and the Research Forest Tract. Both the I-16 and Research Forest tracts are being master planned for industrial development, and due diligence has been under way since 2006.

The IDA will issue both taxable and tax-exempt bonds, in accordance, with federal tax regulation. Moody’s Investors Service gave the IDA a favorable bond rating of Aa2, just one step below that of the federal government’s rating.

Getting the better bond rating is expected to save the IDA $115,000 a year in debt service and more than $3 million over the life of the bonds, according to Trey Monroe of Merchant Capital, who guided the IDA through the bond process.

“It also took off the table having to purchase bond insurance,” he added.

Monroe originally thought Moody’s would rate the IDA’s bonds at A+ — good, but not as good as Aa2.

“My hat’s off to John Henry and everyone who put that presentation together,” Monroe said of the IDA CEO and the IDA staff and board.

IDA member Chap Bennett said the board established five goals when it started looking at re-financing its debt, and the bond resolution meets them all. The IDA wanted to lock in an interest rate, have a plan to include re-paying the principal, have enough money to complete improvements at its I-16 holdings “and most importantly, not having the land tied up in the debt,” Bennett said.

“We can use the proceeds to get a company on the ground or improve the property,” Bennett continued. “It really opens up our opportunities.”

Under the bond package, there will be $16.81 million in tax-exempt and $23.185 million in taxable bonds, at an average interest rate of 4.87 percent. The tax-exempt bonds will mature in 2041 and the taxable bonds will mature in 2033.

As the IDA and its advisors put the final touches on the bond resolution, the wild swings in the stock market and throughout the other financial markets led to some uneasy moments.

“The markets have been more volatile than they were in the spring,” Monroe said. “As volatile as they have been, patience is generally rewarded — you don’t want to step in front of that train.”

Monroe explained that the long-term tax-exempt bonds are more manageable than the long-term taxable bonds. The first principal payment is scheduled for April 1, 2013, and the IDA will not have any principal payments for the current fiscal year.

The debt is secured through the IDA’s ad valorem receipts and Monroe doesn’t expect the bond rating to go down, unless there is a precipitous drop in property values or a similar fall in property tax receipts. But what the IDA will pay on the bonds won’t change.

“These payments are set,” he said. “They will never change.”

There is also a liquidity covenant, rather than a debt service reserve clause, calling for the IDA to have either the cash or cash equivalent reserves of $2.5 million.

The closing date for the bond package is Sept. 14. At that time, the IDA’s swaps agreement with Wells Fargo will end.

The IDA will pay a $655,000 termination fee to Wells Fargo, and the fee is covered in the bond issuance.

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