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Indiana County Sells Fertilizer Notes at Yields Double AAA Munis

Posey County, Indiana, issued $1.3 billion of tax-exempt notes for a fertilizer plant after the state pulled its support for the project on concern the Pakistani owner’s products were being used to make bombs.

The county, near the Illinois state line, sold notes with a mandatory redemption in February 2014 at a yield of 0.75 percent, according to data compiled by Bloomberg. That’s about double the 0.38 percent investors demand to own top-rated munis maturing in a year. Standard & Poor’s rated the securities A-1+, its highest short-term grade.

The fertilizer plant has been a source of contention in Indiana, where Republican Governor Mike Pence last month withdrew incentives for the $2 billion project because of concerns raised by the Pentagon that Lahore-based Fatima Group makes calcium ammonium nitrate. The fertilizer product is used in explosives targeting U.S. soldiers in Afghanistan, the Defense Department says.

The notes will refinance debt issued by the Indiana Finance Authority in December, which was priced to yield 0.2 percent, Bloomberg data show. After the notes are redeemed, the securities will be converted into long-term bonds. The 2014 borrowing would probably be the biggest speculative-grade bond sale ever, eclipsing a similar $1.2 billion Iowa fertilizer deal this year.

John Taylor, executive director of the Posey County Economic Development Partnership, didn’t immediately respond to a telephone message seeking comment.

Also this week, Los Angeles, which had the highest short-term municipal rating from S&P, issued about $1.3 billion in notes, with yields from 0.16 percent to 0.18 percent, Bloomberg data show.

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