Indianapolis will head to market next week with $98 million of debt that taps the Midwestern disaster-area bond program to finance a new corporate campus for Eli Lilly and Co. — a project officials say will transform the city’s central downtown business district . . .The Bond Buyer notes the critics complaint "the city is assuming too much risk with the financing and a city-held mortgage." "Moody’s Investors Service assigned an Aa2 rating to the debt, two notches off the city’s triple-A rating, due to the non-essentiality of the project and the risk of non-appropriation," the trade magazine reports. The Bond Buyer also gives a run down of the finance team for the deal:
The bonds carry a repayment pledge of revenue from the city’s sprawling and lucrative downtown tax-increment financing district. The borrowing will also feature a moral obligation pledge from the triple-A rated city.
Indianapolis will loan most of the proceeds of next week’s bond issue to the developer, Buckingham Cos., which is expected to refinance with a traditional mortgage in 10 years when the city calls the bonds.
Officials said the bond issue is necessary because traditional private-bank financing remains difficult to obtain at an economical rate.
It’s the latest in a series of complex financings undertaken by Mayor Greg Ballard and will tap the city’s allocation of qualified midwestern disaster area bonds. It also includes a small taxable piece.
The 2008 federal Midwestern disaster area bond program allows an issuer to structure bonds for qualified projects as tax-exempt that would otherwise have to forgo the tax benefit because they benefit a for-profit company.
“This really is a more economic way to incentivize the project in today’s climate,” said Deron Kintner, executive director of the Indianapolis Local Public Improvement Bond Bank. “All we’ve done here is rather than the city incentivize the project with very, very large upfront subsidies, we are providing access to capital markets at our borrowing rates.”
JPMorgan is senior manager on the deal. Co-managers are Cabrera Capital Markets, City Securities, Hillard Lyons, Northeast Securities, PNC Capital Markets, and Siebert Brandford Shank & Co.JPMorgan is playing a similar role in the Ballard administration's 50-year privatization deal for the city's parking meter assets. City Securities hired former Bond Bank head for Ballard Kevin Taylor and is being rewarded with more business just like it was when the firm hired Mayor Peterson's former Bond Bank head John Dillon, Jr. Of course, Crowe Horwath's Ann Lathrop, another Goldsmith and ACS alum, gets a spot as financial adviser on the deal, while Barnes & Thornburg (Grand, Loftus and Vaughn) get to serve as bond counsel. Naturally, CCC President Ryan Vaughn didn't recuse himself from voting on the "disaster-area program" despite the fact his law firm is making money off the deal. He's just an employee, you see, whose compensation isn't tied to his job performance as your City-County Council President.
Crowe Horwath LLP is financial adviser and Barnes & Thornburg LLP is bond counsel.
Just out of curiosity I wondered what the Midwestern Disaster Area Bond Program was. As a Midwesterner, I thought I would know if a disastrous event like Hurricane Katrina had hit the region. Yeah, there were the floods a couple of years ago, but those didn't affect downtown Indianapolis. There was that spring storm that damaged the Regions Bank building that weather observers couldn't agree on whether it was a tornado or straight-line winds. Spina, an Iowa bond lawyer, explains what the program is about:
Midwestern Disaster Area bonds were authorized by Congress on October 3, 2008 in the Heartland Disaster Tax Relief Act of 2008. There was an original $2,615,995,000 of Midwestern Disaster Area Bond capacity in Iowa. This financing is limited to 78 counties in Iowa. This financing is also available in certain counties in Wisconsin, Illinois, Indiana, Missouri, Nebraska and Arkansas. A similar program was adopted following Hurricane Ike for parts of Texas and Louisiana. These Bonds follow similar, but not identical, authorization of tax-exempt bonds in the New York Liberty Zone following 9/11 and in the Gulf Opportunity Zone following Hurricane Katrina.
Proceeds of these bonds are used for (1) qualified residential rental property (some income restrictions apply), (2) nonresidential real property (cost of acquisition, construction, reconstruction, and renovation) and (3) utility property.
Requirements for use of Midwestern Disaster Area Bonds are those that are generally applicable to tax-exempt bond financing. In addition, these bonds require a determination relating to the disasters. This requirement will be discussed in the following section.
There has been very little use of Midwestern Disaster Area bonds. In 2009, only two Borrowers obtained financing in Iowa. Projects are now lining up for financing . . .
In the Heartland Disaster Tax Relief Act of 2008, Congress imposed the following specific requirement:"These bonds require a determination related to the disasters," Spina writes. I'm really curious how Indianapolis is tying the eligibility of this project to a disaster. Is it possible some disaster struck this part of downtown of which I'm not aware? Anyone have a clue? Was it Lincoln Plowman's ill-fated attempt to get a zoning variance for a high-end strip club in the area in exchange for a $5,000 cash payment he allegedly accepted from an undercover FBI agent that resulted in his indictment on extortion and solicitation charges? That was one hell of a storm. If this bond program can be tapped for this purpose, then Congress needs to immediately move to repeal this absurd program. And people wonder how the public finance sector bankrupted this country and placed us at the mercy of the Communist Chinese.
“[except that in determining whether a bond is a qualified Midwestern disaster area bond--paragraph (2)(A)(i) shall be applied by only treating costs as qualified project costs if -- in the case of a project involving a private business use (as defined in section 141(b)(6)), either the person using the property suffered a loss in a trade or business attributable to the severe storms, tornados, or flooding giving rise to any Presidential declaration described in subsection (b)(1)(A) or is a person designated for purposes of this section by the Governor of the State in which the project is located as a person carrying on a trade or business replacing a trade or business with respect to which another person suffered such a loss, and in the case of a project relating to public utility property, the project involves repair or reconstruction of public utility property damaged by such severe storms, tornados, or flooding…]"
and “such bond is designated for purposes of this section (on the basis of providing assistance to areas in the order in which such assistance is most needed).”