Miami-Dade Sells Build Americas Three Months After Florida Halt

Miami-Dade County sold about $188 million in Build America Bonds for transport projects as yields on the taxable debt reached a record low and three months after Florida stopped issuing the securities.

The offer, backed by a sales surtax, comes as yields on the federally subsidized bonds touched 5.54 percent yesterday, the lowest since the Wells Fargo Build America index began in August 2009.

“Our three prior BABs issues have been quite beneficial to the county,” Lidia Monzon-Aguirre, director of the division of bond administration, said in an interview in her Miami office before the sale. “The scheduled subsidy payments have been made several weeks before they’re due.”

In May, Ben Watkins, Florida’s debt manager, said the state would stop selling Build Americas until the federal government guaranteed the subsidy payment, which it can withhold if the issuer owes money through programs such as Medicaid. Alan Krueger, Assistant Treasury Secretary for Economic Policy, said Aug. 23 that concerns about the 35-percent rebate on interest costs were “overblown” as 99.5 percent of subsidies have been paid.

The offer has an extraordinary call option that lets the county refund the bonds if the federal government stops the subsidy payments, which added to the interest costs, said Hinton.

Risk Premium

The largest portion of the offering, which matures in 2040, had a yield of 5.62 percent, or 207 basis points above comparable Treasuries, said Hinton. In September, the county sold 30-year obligations priced 265 basis points above the Treasury benchmark. A basis point is 0.01 percentage point.

The county also issued $30 million in tax-exempt bonds. The original ratio was $204 million in Build Americas and $13 million in tax-exempts. Lower yields on shorter-term tax-exempts led the issuer to change some of their maturities from Build Americas to tax exempts, said Frank Hinton, bond analyst with Miami-Dade.

Maryland Transportation Authority, which has the same grade from Moody’s Investors Service and Fitch Ratings, sold about $297 million in Build Americas July 14, with 31-year obligations priced 165 basis points over Treasuries.

“We went out at levels we thought were aggressive,” said Hinton. “I think we did well.”

Sales Surtax

Miami-Dade’s debt will be backed by 80 percent of Miami-Dade County’s half-cent transit system sales surtax. The proceeds from this issue will be used to help fund transit and public works projects, including a 2.4-mile extension of the metro system to Miami International Airport, which is scheduled to be completed by 2012.

The county is authorized to issue as much as $1 billion in bonds backed by the surtax. Excluding the current issue, the county has about $760 million in outstanding debt.

Moody’s warned in its report that its rating “may be unsustainable if the county continues to aggressively issue new surtax backed-debt.”

Standard & Poor’s rated the bonds, which will be underwritten by a group led by Loop Capital Markets LLC, third-highest at AA. Moody’s and Fitch gave them their fourth-highest rating at Aa3 and AA-, respectively.

Ridership and sales-tax revenue both declined during the recession. Sales-tax revenue pledged to the bonds fell 9 percent to $10.4 million in May from the same month two years earlier, according to bond documents. Ridership fell 16 percent over the same period to 8.1 million, according to Miami Dade Transit technical reports.

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