Maryland Authority to Sell $102 Million in Bonds to End Swaps

The Maryland Stadium Authority, which operates venues for the Baltimore Ravens football team and baseball’s Orioles, plans to sell $102 million in fixed-rate bonds as soon as today to terminate two swaps and buy back variable-rate debt.

The proceeds will refund about $82 million of bonds and pay the cost of terminating two related interest-rate swaps, according to the preliminary official statement. Variable-rate debt allows bondholders to sell securities before maturity on a weekly basis, said Michael Frenz, the authority’s executive director. Barclays Capital will lead the sale.

Dexia SA serves as a liquidity provider, meaning it is the buyer of last resort on the authority’s variable-rate bonds that investors don’t want. Dexia is charging the authority 45 basis points every year on all outstanding bonds, up from 8.25 basis points three years ago, Frenz said. A basis point is 0.01 percentage point.

“The real risk was potentially paying a couple hundred thousand dollars more in interest charges each month,” Frenz said. “This really was the perfect time to issue in terms of interest rates and the termination fee on the swaps.”

Dexia, a bank based in Paris and Brussels, is being broken up after running out of short-term funding. Once the world’s largest municipal lender, Dexia was rescued by the governments of Belgium, France and Luxembourg in October for the second time in three years.

Saving $1 Million

As of Dec. 9, the authority expected savings of $1 million through 2019, which is the longest maturity date on the bonds, said David Raith, chief financial officer. Depending on how long Dexia held onto a bond, the authority paid an interest-rate premium of 100 to 300 basis points, he said.

The stadium authority entered into swaps agreements with AIG Financial Products Corp., Raith said.

Standard & Poor’s rates the new debt AA+, the company’s second-highest grade, with a stable outlook, citing the “demonstrated commitment” of the state to pay appropriations-backed obligations. Maryland’s general-obligation bonds are rated AAA, S&P’s top level.

The authority may issue the bonds as a single series taxable at the federal level, according to the preliminary official statement. It can also issue a second series of debt that is subject to the alternative minimum tax.

The authority’s bonds are backed by rental payments from Maryland for leasing the stadiums, Raith said. Designated lottery proceeds of about $20 million a year fund the debt-service obligations of larger stadium projects, he said.

The Maryland Stadium Authority was created in 1987 to construct sports facilities. Its responsibilities grew to include projects such as the $35.2 million student commons at the University of Maryland in 2002 and a $63 million renovation of Hippodrome Performing Arts Center in 2003. The Ravens play in M&T Bank Stadium and the Orioles at Oriole Park at Camden Yards.

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