Tax Increment Finance Authority of the City of Taylor, Michigan (TIFA)
$15,995,000 Tax Increment Refunding Bonds, Series 2013A
$4,680,000 Tax Increment Refunding Bonds, Series 2013B
Underlying Rating: A- (Stable)
Insured by Assured Guaranty Municipal Corp. (AGM)
Sale Date: 03/13/2013
Role of HSE: Sole Manager
On March 13, 2013, Hutchinson, Shockey, Erley & Co. acted as sole manager on a $21.29 million transaction for the Tax Increment Finance Authority of the City of Taylor, Michigan. The Authority was established to perform economic development activities within the City. There are six combined development districts that comprise the Authority for a total of approximately 6.5 square miles.
While the City of Taylor’s General Obligation credit is and has been non-investment grade for some time by Fitch and Moody’s and BBB- by S&P; HSE was still successful in refunding the Authority’s 2001 TIFA Revenue Bonds by producing over $1.4M in net present value savings (6.27% of 2001 refunded bonds). HSE assisted the City/Authority in maintaining its A- underlying rating by S&P based upon solely the TIFA revenues since its original issuance in 1991. HSE recommended and structured the refunding deal into two series of bonds for the reasons described below. The Series 2013A issue had serial bonds from 2014 to 2020 and the Series 2013B issue had serial bonds maturing in 2020 and 2021. Coupons ranged from 2-4%.
The Series 2013B bonds featured a six-month call option on November 1, 2013. Bonds due in 2021were priced to yield a 1.50% to the call date and a 3.78% to maturity. The short-call was placed on this series to allow for the Authority to call a set number of bonds equaling the anticipated selling price of a parcel of land and building owned by the City and operated by the Authority. Additionally, the restructuring of the 2001 bonds gave significant savings to the Authority and increased the forward looking coverage ratios. Finally, the ability by the Authority to call in bonds with the proceeds from the anticipated property sale, allowed the City to shorten the duration that the Authority was capturing increments. The Authority, who had a first lien on all increments, would then be clear of servicing any debt and would be allowed to pass all increments through to the City, thus improving the City’s overall financial health.
HSE used Assured Guaranty Municipal Corporation (“AGM”) to insure the bonds and provide a surety bond. By using AGM on the issue, the credit was enhanced to AA-. The debt service reserve was funded by the surety bond with AGM, equal or lesser of the MADS, 1.25x the annual average debt service, or 10% of par issuance which provided further protection. On the day of pricing, there were 8 unique buyers on this transaction.