Howard County MD Housing Commission
$34,265,000 | Refunding Bonds | Series 2012
The Howard County, MD Housing Commission (“Commission”) issued the following bonds in connection with its Columbia Landing project: 1) $30,000,000 Howard County Housing Commission Bank Qualified Bonds (Tax-Exempt Variable Rate), Series 2009 – Columbia Landing Project; and 2) $2,377,946.05 Howard County Housing Commission Bank Qualified Bonds (Tax-Exempt Variable Rate), Series 2010 – Columbia Landing Project. To hedge interest rate risk the Commission entered into an interest rate swap on each financing to create synthetic fixed-rate structures. The historically low interest rate environment in the tax-exempt bond market in 2012 presented the Commission with the opportunity to realize significant debt service savings over the next five years by refinancing the current Columbia Landing debt.
Upon a review of the Commission’s balance sheet and historical operating performance, MRA fully believed the Commission was a ‘A’ rated entity. Given the Commission’s anticipated borrowing pattern, MRA advised a single rating would be sufficient. Based on MRA’s understanding of the marketplace, the Commission was advised to obtain a rating from Standard and Poor’s. Through a detailed rating agency presentation crafted by MRA that included: an in depth financial performance discussion, management discussion, two site visits – Monarch Mills & The Cottages (two award winning properties) the Commission was awarded its first stand alone rating of ‘A+’. In fact this rating served as the very first rating issued by Standard and Poor’s under their new Public Housing Agency ratings criteria released in 2012. The Commission was presented as a case study by Standard and Poor’s at a Conference in Chicago in September 2012.
After reviewing various financing structures MRA advised the Commission to use a synthetic fixed-rate structure for the Series 2012A debt utilizing Floating Rate Notes (“FRNs”) as the underlying instrument. Having obtained its first stand alone credit rating the Commission issued the FRNs on its own rating with no liquidity facility. The FRNs are structured with a ‘put’ feature on July 1, 2018. The Commission’s FRNs were priced at SIFMA + 125bps. To hedge interest rate exposure on the Series A FRNs, the Commission entered into a new interest rate swap with a counterparty where it will receive SIFMA and pay a fixed rate of 1.826%. The swap documents were negotiated to provide the Commission the following benefits: 1) the Commission will never post collateral to the counterparty; and 2) the Commission has a ‘par cancellation option’ beginning on July 1, 2018 which allows the Commission to cancel the swap at anytime without making a termination payment to the counterparty regardless of the mark-to-market valuation. The Commission realized over $5.7M in cash-flow savings between transaction closing and July 1, 2018 when it refinanced this transaction to apply Low Income Housing Tax credits.
The above outlined transaction demonstrates MRA’s ability to craft a plan of finance that addresses the client’s goals and objectives while preserving future balance sheet flexibility. Specifically, this transaction demonstrates MRA’s expertise in the following areas: rating agency strategy/presentations; transaction structuring; and interest rate swap expertise.