Franklin County, Ohio, will refund Build America Bonds

Franklin County, Ohio, will issue $138.2 million of lease revenue anticipation refunding bonds through the Franklin County Convention Facilities Authority to refund or redeem outstanding Build America Bonds.

The proceeds of the Series 2024 refunding bonds will also be used to consolidate the existing rental reserve and debt service reserve fund into a restructured rental reserve fund, which it will stock, and pay issuance costs.

The deal prices Thursday and has an optional redemption provision for Dec. 1, 2034, at par.

Franklin County Convention Facilities Authority Executive Director Ken Paul said the pricing date is firm.

Co-senior managers are BofA Securities and Loop Capital Markets. The bond counsel is Dinsmore & Shohl LLP. The municipal advisor on the deal is Baker Tilly.

Moody's Ratings assigns the bonds a rating of Aa2 with a stable outlook. S&P Global Ratings rates them AA. The outlook is stable.

The authority originally issued the Series 2010 bonds to finance the construction of the Hilton Columbus Downtown hotel and to fund a bond reserve, according to a Sept. 13 investor presentation.

The Series 2024 bonds will refund the outstanding principal on the $160 million Series 2010 BABs, secured by rent payments by the county pursuant to a lease agreement between the authority, as lessor, and the county, as lessee.

"By redeeming all outstanding Series 2010 Build America Bonds, the FCCFA will eliminate the risk of further reduction or elimination of the BABs subsidy and the costly make whole provision associated with the current bonds," Paul told The Bond Buyer. "The redemption will also allow the FCCFA to restructure the hotel debt program to maintain long-term debt coverage, while incorporating new call provisions that will provide the FCCFA greater flexibility and opportunity to benefit from future markets."

Paul said the rental reserve fund was used during the COVID-19 pandemic "to mitigate the impact of reduced hotel revenue and cover Series 2010 debt obligations." The restructured fund will protect bondholders as well as providing greater protection to the county by placing the rental reserve ahead of the county appropriation, he said.

Market participants have said current interest rates may lead to an uptick in issuers calling Build America Bonds this year. But redemptions have sparked controversy.

BABs issuers get a federal subsidy on interest rates they pay to investors after selling taxable bonds. But the subsidy has fallen short of promises since 2013 due to federal budget sequestration.

J.P. Morgan counted 13 issuers that had called BABs year through May, impacting $7.5 billion of debt. That includes a deal from the Regents of the University of California that provoked a challenge from a group of investors over the legality of triggering the extraordinary redemption provision.

But a recent decision in Indiana Municipal Power Agency v. U.S. supports the argument that sequestration caused a materially adverse change that justifies the extraordinary redemption provision, Orrick attorneys said.

As special obligations of the authority, Franklin County's Series 2024 bonds are payable solely from county rent and amounts held in funds created under the indenture, according to a Sept. 13 preliminary official statement.

The POS notes: "The lease gives the Board of County Commissioners ? the right to not appropriate or otherwise make legally available in any succeeding fiscal year funds for payment of county rent. In the event of such non-appropriation, the county's interest under the lease shall terminate on the last day of the fiscal year for which appropriations have been made for such county rent without penalty or expense of any kind."

It also states that revenues from the expanded Hilton Columbus Downtown hotel "are not pledged as security for the Series 2024 bonds, although net operating revenues from the expanded hotel are one of the principal sources from which the authority anticipates making CFA rental payments."

Moody's said in a Sept. 5 report that its rating on those bonds reflects the lease appropriation pledge of Franklin County and is two notches below Franklin County's issuer rating due to annual appropriation risk and the "less essential nature" of a convention center hotel project.

"Also considered in the rating is the county's ongoing commitment to the convention center hotel, despite reduced hotel revenue [during the COVID-19 pandemic]," Moody's said. "The debt service cost is low relative to the scope of the county's total operations."

S&P noted the motivation for the refunding is "to remove the BAB subsidy risk" and said the refunding will lead to "nearly identical" debt service through 2032 by deferring a portion of principal to 2033 through 2042, all of which will be callable.

"The structure of the transactions meets our criteria for rating lease revenue bonds," said Benjamin Gallovic, director at S&P. "We can't speak to the sufficiency of the debt service provisions."

Gallovic said S&P's rating also reflects the appropriation risk.

The authority's board includes 11 members, six appointed by the county, three by the city of Columbus and two by suburban mayors.

The authority owns the Greater Columbus Convention Center; the 1,000-room Hilton Columbus Downtown adjacent to the convention center; Nationwide Arena, home to the National Hockey League's Columbus Blue Jackets; and six parking facilities around the convention center.