Take a look at the municipal fixed rate calendar this week and mark off the deals that would no longer be done on a tax-exempt basis, if the House Republicans have their way. It is a melancholy exercise.
Of the $301 billion in long-term, fixed-rate municipal bonds sold so far this year, I estimate that at least one-third would no longer be allowed, between advanced refundings, stadium bonds, private-activity bonds and tax-credit bonds. I’d like to be more precise, but I don’t believe any of the numbers I’ve seen, which is very muni.
There’s Clark County, Nevada, selling $107.8 million in general obligation bonds. The proceeds would “advance crossover refund the county’s series 2009B GO limited-tax flood control bonds,” according to S&P Global Ratings. I really wanted to explain the intricacies of a crossover refunding, but sorry, Clark County. No more advance refunding.
Then there’s the Louisiana Public Finance Authority. The authority wants to sell $50.8 million in tax-exempt bonds for Tulane University in New Orleans to current refund some bonds it sold back in 2007. Denied! As a nonprofit 501c3 institution, Tulane will no longer be allowed to borrow in the tax-exempt market.
Those $36 million in taxable bonds the university wants to sell for improvements? Those are okay.
The Oregon Facilities Authority is selling $66.7 million in revenue bonds for Reed College, the liberal arts school in Portland, Oregon, to build a new dorm and refund some bonds whose first redemption date is in 2020. Sorry! Reed College is a nonprofit, and these would not be allowed to be sold on a tax-exempt basis in the new year.
South Dakota’s Housing Development Authority is selling $75 million in mortgage bonds. The authority purchases mortgage loans from lenders at the time the lender makes a commitment to a purchaser or builder of a home. Since its founding in 1974, it has purchased 72,113 qualified mortgage loans totaling $4.5 billion. These would seem to be swept up in the elimination of private activity bonds, no?
The Ohio Air Quality Development Authority plans to sell $210 million in tax-exempt revenue bonds to help the Pratt Paper company build a mill to recycle waste paper and corrugated containers in Wapakoneta, Ohio.
The unrated deal is being sold in minimum denominations of $100,000, reflecting just how hard it is to build mills that turn one thing into another thing. All I can say is, if you can stomach the risk factors, better get these now, because this sort of deal will disappear on Jan. 1. Private activity bonds!
Bloomberg Markets
By Joe Mysak
November 7, 2017