Arena bonds to be refunded

February 15, 2009
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If city commissioners give the move their blessing, the 1994 serial bonds that helped build Van Andel Arena could go on sale this week.

The Downtown Development Authority, which issued the original bonds, agreed last week to refund the securities through the city of Grand Rapids and use the city’s double-A municipal bond rating for the sale instead of buying bond insurance.

Although the city will be the seller, the DDA will secure the sale with its tax-increment revenue. The bonds will be sold to retail and institutional buyers, and could be on sale as soon as Thursday.

“We’re doing it now because we see a window of opportunity,” said Dick Wendt, DDA attorney.

“The way things are going, it’s likely (interest) rates will increase big time,” said Jana Wallace, DDA treasurer, of the direction the bond market is heading.

Refunding the bonds could result in a total savings of slightly more than $3 million, with the DDA and the state splitting the take.

The DDA will get its share when the sale is completed, as much as $1.6 million that it can use for other projects. The state plans to take its share over a longer timeframe by capturing more of the DDA’s school-tax revenue.

The 30-year serial bonds have an outstanding principal of $26.4 million.  The DDA has been interested in refunding the bonds since 2004, when the 10-year call provision expired.

Wallace told DDA members that they have to use tax-increment revenue, property-tax payments from downtown property owners, to pay bond buyers because Proposal A banned using school-tax revenue to pay for debt after 1994.

Wallace conservatively estimated that the tax-increment revenue source would be worth $199.8 million to the DDA through 2024, giving the city more than enough funds to go forward with the sale.

Although Moody’s Investors Service recently dropped the city’s bond rating a notch from Aa2 to Aa3, Wallace said the city’s mark was still higher than the grades most bond insurers and other cities in Michigan currently have.

“We’re doing very well compared to the rest of the state,” she added.

When the DDA issued the serial bonds, the board also sold capital appreciation bonds. Those securities, which have an outstanding principal of $9.89 million, aren’t part of the refunding sale.

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