City of Miami raises interest cap on $103 million Marlins garage bonds
By Jacquelyn Weiner
After three months of delays, the City of Miami is readying to float bonds next week to finance Marlins stadium parking construction — but not without last-minute incentives.
New lures approved at last week's commission meeting include percentage-point increases to the stadium-garage bonds' interest-rate caps and AAA-rated bond insurance with a surety guarantee.
Miami commissioners OK'd the additions after officials warned the changes were necessary to match market conditions and make up for double-notch ratings downgrades.
"The end result is that if you approve this today, by July 21st in New York the city will be selling the bonds," said Mayor Tomás Regalado. "If you do not, then we have to cancel the sale and wait for a better time."
Late audits and financial troubles stalled the bonds sale, which was originally scheduled for April.
Under terms approved last week, the city is to begin selling $103.6 million in parking-garage bonds, according to city documents, of which $101.9 million is to go toward the project.
Add interest, which the city commission capped at 7.5% for tax-exempt bonds and 9.5% for taxable bonds, and the city is expected to owe $237.7 million, to be repaid by July 2039. The first payments would be due Jan. 1, 2011.
Without the bond insurance and surety guarantee — which Chief Financial Officer Larry Spring said cost $3 million and $128,000, respectively — the city was expected to owe $255.9 million.
That's a savings of "$14 million in higher interest rate had we gone to market with our underlying ratings," Mr. Spring said. "That double-notch downgrade is now being offset by AAA bond insurance."
In June, Standard & Poor's downgraded the city's general obligation bonds rating from A+ to A- and special obligation bonds from A to BBB+.
"That [special obligation bond] is also the underlying rating that was assigned to the Marlin's Garage Bonding," Mr. Spring wrote in an e-mail. "However we were able to obtain bond insurance with now gives an insured rating of AAA" from Standard & Poor's.
In addition, the one percentage-point increase brought the interest-rate cap from 6.5% to 7.5% for tax-exempt bonds and 8.5% to 9.5% for taxable bonds.
That doesn't mean that will be the going interest rate for the bonds, Mr. Spring said, but it will allow greater flexibility.
"Working with our financial advisor and our senior underwriter and their respective desks, they felt that we were… inching closer and closer to that taxable cap limit," Mr. Spring said. "We need that flexibility going into market."
"Recent conditions in the municipal bonds market indicate that the taxable bond issues are pricing at just over 8.50% and tax exempt bonds are pricing just under 6.00%," according to a letter from the city manager's office.
However, City Manager Carlos Migoya said he doesn't anticipate pricing to reach maximum levels.
"What's happened right now in the bond market is two things," Mr. Migoya said. "One, there's tightness starting to happen in municipalities under muni bonds because of what has obviously happened to municipalities all across the country."
In addition, timing wasn't ideal: "Fourth of July week happens to be a really tough week in the bond market because a lot of the investment bankers take the week off, so there may not be as much liquidity," Mr. Migoya said. "So we may have an improvement July 21st, but we don't know that to be the case, so we have to err on the side of caution from a cap perspective."
Another savings, he said: the economy has brought down the cost of construction, reducing the amount sought "substantially down" from an approved up-to $120 million to the current $103.6 million.
"Where you saved in one you lost in another," commission Chairman Marc Sarnoff said.
"But the overall offset is a net savings."
And when it comes time to repay its debt, the city will be amply prepared, Mr. Spring said.
The three pledged revenues, Mr. Spring said, are Convention Development Tax dollars from Miami-Dade County, parking payments from the Marlins starting at $10.03 per space per game, and a 15% parking surcharge.
"Those pledged items combined provide us more than enough coverage."
The baseball team will be able to resell at its own price scales the parking spaces in the four bond-financed garages and six parking lots at the new stadium, which is to open in 2012.
The city has a contract with the team and Miami-Dade County to provide the parking structure in time for the first game that season. A delay in bonding could tighten deadlines, possibly increasing construction costs.