Posted: November 20, 2009

By Philip Newswanger

philip.newswanger@insidebiz.com

The Virginia Resources Authority raised $197 million from bonds last week that will underwrite or refinance 15 projects across the state, including the Hampton Roads Regional Jail Authority.

The 30-year bonds were sold with an interest cost of 3.85 percent, the lowest interest in the history of the authority's Virginia Pooled Financing Program.

The bonds will finance water and wastewater projects, regional and local jails, and a courthouse, and they'll refinance several existing projects.

"VRA constantly monitors the financial markets and adapts its strategies to produce the greatest results for Virginia's communities," said Sheryl Bailey, the authority's executive director since January 2006. "We're always keeping our hands on the pulse of the municipal market."

A native of Norfolk, Bailey spent 20 years guiding financial policy and planning in Hampton and Norfolk where she directed municipal debt and capital management programs.

The VRA said it saved $33.4 million in borrowing costs by using a combination of tax-exempt bonds and Build America bonds.

The bonds will refinance $13.96 million of the Hampton Roads Regional Jail Authority's debt, a savings of $856,000.

Bailey also said the authority's high credit ratings saved it $14 million in borrowing costs.

"This is the first time we have used Build America bonds," Bailey said. "We chose a separate underwriting team because Build America bonds have a separate buyer base.

"Our motivation was economic," she said. "Our motivation was to secure the lowest rate, and we believe the Build America bonds were part of that strategy."

Bailey said localities gained access to the money the day after the bond closing, which was Nov. 19.

"All the money to the localities will be deposited into escrow accounts, so they can begin drawdown immediately," Bailey said.

The authority has funded nearly 370 local projects since 2006, a $2.2 billion investment in Virginia's communities.

The Build America bonds are part of the stimulus package in the American Recovery and Reinvestment Act. The bonds, available to state and local governments, are meant to spur jobs and stem the rise in the unemployment rate while giving states and municipalities another financing mechanism.

State and local governments can issue these taxable bonds in 2009 and 2010 to finance any capital project, according to the Internal Revenue Service. The IRS said state and local governments receive a direct federal subsidy payment for a portion of their borrowing costs on Build America bonds equal to 35 percent of the total interest paid to investors.

U.S. Treasury said investors will receive yields comparable to other taxable debt. Since April, $35.6 billion in Build America bonds has been issued, according to the Treasury Department.

Build America bonds now constitute about 19.5 percent of municipal bonds market, Treasury said.

A total of 39 states are participating in the program, with a total of 443 separate issues, according to Treasury.nib