It was another diverse week in Muni Finance. From Atlantic City to Detroit, then Louisiana to the Sunshine State – we will look at Power, Assessments, Liens, Renovation and Restructuring.
So…here goes…today’s Monday Muni Minutes!
Enjoy and have a great week! Deb
CURRENT EVENTS
Atlantic City’s Huge Diversity Boost…A $500 Million “Phoenix”
If all goes according to plan, Atlantic City is about to get a huge economic diversity makeover, thanks to Stockton University and Polo North Inc, a Florida developer.
Aptly named the Phoenix Project, this multi-dimensional makeover plans to transform the troubled gambling hub with “next generation” resorts and university appeal.
What’s the main goal?
Diversity…particularly in the face of the 60-day extension on a $40 million state loan and lawsuits threatening future bond sales.
How will they overcome these challenges…on top of a $101 million budget gap?
“As the name of the project signals, the Phoenix rises out of the ashes to be reborn and will evolve to include a diversified collection of projects including eight parts designed to show that the American dream is still alive and well,” Polo North president Glenn Straub declared in a statement. “A warm thank you to the people of Atlantic City for giving both boards the opportunity to work on the transition project.”
And lofty transition goals they are.
Phoenix Project Goals
- Redeveloping Atlantic City’s Municipal Airport
- Building an extreme sports complex
- Two large yacht marinas
- A world class multipurpose equestrian complex
- Indoor and outdoor water parks
- A pier with laser light show capability
- High speed ferries and helicopter service from Manhattan
- A new medical complex
Plus…
- High-end independent living facilities
- And lots of shiny new things for the entertainment hub
Well, that certainly is diversified.
In addition, Stockton University is scheduled to open its Island Campus in the former Showboat Casino Hotel this fall. It has an 18-month option to lease or purchase the Revel property, but is weighing options due to possible challenges from Trump Taj Majal, which is threatening legal action to prevent college students from living next door to their casino.
Hmmm, maybe that is a little too diversified…
“Atlantic City needs diversification and this plan could help that, but it is an ambitious plan that will face some challenges,” said Michael Paladino, head of Fitch Ratings’ gaming, lodging and leisure group. “It will be a challenging plan to execute at its fullest.”
In addition to Stockton and Polo’s plans, a number of big names are calling Atlantic City home. These include a 85,450 square foot Bass Pro Shops Outpost and a 16,000 square feet of new, upscale shopping by the Boardwalk Hall sports arena.
While this all sounds “diversity-positive”, similar ideas in the past have failed to produce…mainly due to bad economic timing.
“We have seen proposals and plans in the past but it all comes down to timing and execution,” said Professor Mar Pfieffer, assistant director of Rudgers University’s Bloustein Local Government Research Center. “It is a great idea, but there have been good ideas before and they have had trouble going forward.”
[Editor’s Note: Atlantic City has been on the radar for several months as another city that could be headed for restructuring – operating under an emergency manager. Their revenues have plunged by more than 50% in the last 10 years and four casinos have closed recently.]
Stopped Short: Why Did LSU Halt Their Already-Priced Deal?
Amid a whirlwind of conflicting reports, Louisiana State University halted their $114.5 million Series 2015 Auxiliary Revenue and Refunding Bonds – just two days after it priced.
One media version of “why” indicated that the university was getting ready to file a “financial exigency plan” – meaning it had insufficient funds to pay for programs and staff.
LSU staff said it is because the state of Louisiana is facing a looming $1.6 billion budget deficit.
“In light of recent events, LSU has decided to postpone the issuance of Series 2015 Auxiliary Revenue and Refunding Bonds in the amount of $114.5 million,” the statement said. “Under the current circumstances and due to the continued unpredictably of our state budget, we believe this is the responsible thing to do, and we will reevaluate the offering once the state’s financial picture becomes clearer.”
State Treasurer John Kennedy indicated that many big investors pulled out – and not surprisingly so.
Kennedy said investors “see a state that is No. 1 in the country in the reduction of public support for higher education. They see a state that has raised its tuition 92%.”
To fix the budget gap, it looks like cuts to higher education are squarely on the table – which could mean reduced funding between $211 million and $700 million. LSU would absorb a significant portion of that reduction.
Given those facts, it is little wonder that LSU stopped short and is “exploring a wide range of contingency plans”?
[Editor’s Note: We will continue to follow this story as many of our readers are in higher ed. In the meantime, I’d love to hear what your thoughts are…either way.]
Can Assessment Powers Go Too Far? FL Local Officials Say YES!
House Bill 7067 is creating quite a stir in the Sunshine State.
If passed, HB 7067 will give the Florida Development Finance Corporation (FDFC), a state conduit, expansive new powers to issue industrial development bonds statewide…without the respective
local government’s approval.
Surprise! Your tax bill just went up.
I wonder what the reaction from citizens of those cities will be when new assessments arrive that may or may not have gone through their local elected officials…if it is anything like our small town, feathers will be flying.
Why is this being considered?
To finance energy saving improvements known as the PACE projects, which are required under Florida’s property assessed clean energy law. There are currently $2 billion in bonds being slated for PACE, but FDFC does not have authority to levy assessments to secure the debt. Without that authority, the bonds cannot be validated – hence HB 7067.
Here are some key perspectives:
- The Florida League of Cities, representing more than 400 cities and towns, opposes it
- Two appeals for PACE are currently before the Florida Supreme Court
- Some county commissioners are passing resolutions opposing it
- FDFC Board members earlier approved bonds without proper appointment
- Some say this would give rise to a “state-run” monopoly
- HB 7067 changes the essence of what FDFC was legislatively created to do in 1993, allowing it to become a statewide issuer of bonds – rather than small issuers
A local attorney, who asked to remain unnamed said, “This seems inconsistent with FDFC’s original purpose of being an issuer for small conduit bond issues that were too small to do alone, but to aggregate them into a pool.”
[Editor’s Note: What do you think about this? On one hand, there is legislation mandating extensive investment in green energy such as hard-wind renewables and solar. That costs money – lots of money. Bondholders, rightfully so, are tired of their apparent standing in any bankruptcy proceeding – so liens on the property seem perfectly logical…like for water and sewer projects. As a citizen, how do you feel about an entity being able to tap your wallet without your local officials being part of that process? In our home town, we approved a new school bond issue last year – and now there is a move to consolidate into a regional fire district. While both sound great – it means a roughly 30% increase in our property taxes in two years. How many citizens can afford that?]
OUT & ABOUT
Conferences:
The Bond Buyer’s Midwest Municipal Market Symposium
June 30, 2015 InterContinental Chicago Magnificent Mile, Chicago, IL
Resources:
I am really enjoying the “new bond series” being featured each week –which provides insights into current public offerings around the country. It’s a different perspective on our world…
On-Demand Post Issuance Compliance Training for Issuers
“Compliance Basics” – a Free, 3-part video training, plus the Monday Muni Minutes
On-Demand Webinar
Resource: On Demand Replay of Continuing Disclosure after MCDC
Slides: Final Slide Deck for Continuing Disclosure after MCDC
Muni Market Minute Updates
(Quick news bits on topics we’ve covered in earlier MMM editions!)
Relieving Debt for Michigan Schools IS all About the Money
Detroit’s sensational bankruptcy and its lingering school debt woes are common knowledge. However, the earlier charges placing the blame squarely on “leadership mismanagement” may not tell the full and correct story.
When you read the fine print, it is – well simply wrong.
The Citizens Research Council of Michigan (CRCM) just released a new report titled, “State Assumption of School Debts” – and it cites a much more basic solution…more money.
Are you surprised?
Craig Thiel, senior research associate at the CRCM said, “Even in Detroit, under an emergency manager, he realized he couldn’t do it and took the city into bankruptcy, and at the end of the day, with the grand bargain, the city received additional money,”
Governor Snyder is looking at how to resolve the issue as Detroit School District stands ready to join four other schools who had portions of their debt taken over by the state: namely, Highland Park, Muskegon Heights, Buena Vista and Inkster.
[Editor’s Note: CRCM’s report has some eye-opening and interesting details…check it out here “State Assumption of School Debts” .]
Detroit’s Income-Tax Bonds Get Statutory Teeth
Want a little more comfort when considering adding Detroit debt to your portfolio?
Last Wednesday, Senate Bill 160 gave bondholders a new and powerful tool – a statutory lien on income taxes generated in Detroit.
Governor Snyder signed the bill into law as Detroit plans to seek $275 million in long-term bonds in its first post-bankruptcy financing – these bonds will replace the 150-day privately placed Barclay’s bonds from December, when Detroit was exiting bankruptcy.
The financing is expected to provide the city somewhere between $20 and $30 million in interest savings.
“We need to ensure Detroit’s debt is repaid under the terms of the bankruptcy to allow the city to continue its recovery,” Snyder said in a statement. “The savings from lower interest costs will allow Detroit to reinvest in critical areas like public safety and municipal services.”
Barclay’s agreement requires that the city seek two credit ratings. Currently all the city’s bonds are rated “junk” – so hopefully the lien and intercept feature will provide the security needed to meet investment grade status.
The sale date of the bonds is pending.
[Editor’s Note: The bonds being considered right now appear to be 8 to 10 year maturities and will be the city’s only income-tax pledge backed debt. We shall see how this plays out.]
In closing, we hope you found this week’s edition of the Monday Muni Minutes valuable and informative.
How is your Q1 -15 continuing disclosure “to-do” list progressing? Please feel free to reach out with any questions!
Chat soon!
As always, your comments are welcome…
To your compliance success,
Debbie
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