DDA Set To Bond Again

December 3, 2007
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GRAND RAPIDS — If everything goes according to plan, the pricing for one of the Downtown Development Authority bonds that helped to build Van Andel Arena will get done this week. If so, the refunding transaction should close in two weeks.

Those “ifs” took center stage last week when the DDA held a special meeting to approve the parameters of a deal that would sell the securities to the Michigan Municipal Bond Authority and reduce the board’s future debt service by $4 million from fiscal years 2008 through 2024. The 30-year bonds reach final maturity in 2024.

“Despite a lot of hard work, some things are still up in the air. The whole group is still working to refund this by the end of the year,” said DDA Executive Director Jay Fowler.

The DDA hadn’t heard last week from the Ambac Financial Group, a New York City-based firm the state uses to insure public bond issues. The board had hoped to hear from Ambac three weeks ago, and members speculated the current problems in the lending and mortgage markets have delayed the firm’s action on the matter.

“The parameters are set up so this could happen next Wednesday,” Fowler said of the bond pricing last week.

The DDA issued two bond types in 1994 that totaled almost $55 million, and that revenue went to the construction of the $75 million arena, which opened in October 1996. One type is a serial bond and the other is a capital appreciation bond.

The DDA wants to refinance the serial bond. The bond is the larger of the two and has an outstanding principal of $29.4 million, while principal and interest come to an estimated $52.28 million.

The DDA, which approved the refunding idea in August, has estimated that it can save about 20 percent on the net present value of the bonds because interest rates are lower now than in 1994. The savings would total about $5.8 million, which the DDA would split with the state.

“The savings will be considered new money and we will have to spend it,” said Jana Wallace, DDA treasurer.

“We’re taking our share up front,” said Scott Buhrer, chief financial officer for the city.

DDA Counsel Richard Wendt told board members that they can expect about $3 million coming to them when the transaction closes. The funds would have to be spent on eligible activities, as outlined by state law, and within the district, which the DDA hopes to expand soon.

Buhrer said the benefit for the state is that fewer tax-increment dollars will be captured from the school millage because the debt service will be reduced. The DDA collects that revenue to pay debt service on the arena, and the state has to replace the captured dollars. Buhrer also said he has asked the state Treasury for a letter that guarantees the school funds will be protected throughout the transaction.

The capital appreciation bonds the DDA issued have an outstanding principal of nearly $9.9 million and an outstanding balance of $38.1 million, which includes interest.

The outstanding principal for both bond types is $39.3 million. The total principal and interest obligation for both is $94.4 million.

The DDA has budgeted $5.3 million for debt service this fiscal year, an amount that includes principal and interest for the arena bonds and for the bonds that built the public museum parking ramp.

When DDA Vice Chairman and County Commissioner Paul Mayhue asked Wendt what were the odds the arena bonds would be priced this week, Wendt said there was a 50-50 chance that action could happen on time. But if the pricing doesn’t occur this week, Fowler said the transaction would likely be pushed back to early next year.

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