Arena Bonds Sale On Hold

December 28, 2007
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GRAND RAPIDS — Although the Downtown Development Authority wanted to get the process to refund the bonds that built most of Van Andel Arena under way by the end of this month, it now looks like the earliest the board will go to market with those securities will be the middle of next month.

“We pulled from the remarketing because of the uncertainty of the market, specifically the bond insurance market. Our plan is to revisit it after the beginning of the new year and then we will probably do it at that point,” said Richard Wendt, DDA counsel and partner at Dickinson Wright PLLC.

The DDA wants to sell the bonds to the Michigan Municipal Bond Authority, a move that would reduce the board’s future debt service by roughly $4 million through the final maturity year of 2024. And city CFO Scott Buhrer said the sale would instantly give the DDA slightly more than $3 million, money that would have to be invested in the district.

The MMBA had planned to market the bonds last Tuesday. But a delay in the actual market day came about because Moody’s Investors Service was expected to downgrade the rating of the Ambac Financial Group from triple-A to double-A. Ambac is the New York City-based insurance service the state bond authority uses, and a downgrade in the insurer’s rating would mean a higher interest rate for the arena bonds. If the DDA wants the MMBA to be part of the refunding process, then Ambac has to be involved in it, too.

The DDA issued two bond types in 1994 that were worth almost $55 million, revenue that went toward the construction of the $75 million arena. The board wants to refinance one type: the serial bond. The serial bond is larger than the capital appreciation bond, and it has an outstanding principal of $29.4 million. The serial bond’s remaining principal and interest total an estimated $52.28 million.

Refunding the serial bonds could save 20 percent of the net present day value because interest rates are lower now than in 1994. The total amount saved would exceed $6 million, and the DDA and the MMBA would split that amount if the proposed deal is finalized.

“I think time is an ally for us, and I think interest rates will decline,” said Buhrer of pushing back the market day.

“The rates are really attractive for us on an insured or uninsured deal,” he added.

Despite the delay in marketing the securities, board members recently agreed to a pair of provisions in the refunding agreement that Ambac requested. One restricts the DDA from issuing another bond that is backed by tax-increment revenue. The other requires the board to have enough reserve to cover the annual debt service by twice its amount.

DDA Treasurer Jana Wallace said the board made a $1 million semi-annual interest payment on the bonds Dec. 1.

The capital appreciation bonds the DDA issued have an outstanding principal of $9.9 million and an outstanding balance of $38.1 million. The outstanding principal for both types is $39.3 million. The total principal and obligation for both is $94.4 million.   

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