DALLAs -- The Texas Bond Review Board yesterday approved a $250 million bond issue that will use lease revenue bonds for the first time to fund the state's $1 billion commitment to the Superconducting Super Collider project.
The Texas National Research Laboratory Commission is preparing for a negotiated sale in late November that will feature a no-security lease, backed only by future appropriations from the Texas Legislature.
The review board yesterday au- up to $278 million in lease revenue bonds, but that figure includes a 10% debt service reserve account that may not be needed. The commission hopes to sell only $250 million.
"We are trying to structure the deal so that we actually front-end lease payments and build a reserve that way," said Robert Carpenter, director of fiscal affairs for the $8 billion project. "There is no security for this issue. Whatever is funded by Texas for the project will eventually be owned by the [federal] Department of Energy."
Later, he added, "In a lot of these deals, there are still collateral and the faciity is used directly by the state. Here, there is no mortgage, and the facility is for the federal government."
Because of that, the bonds had to be structured to deal with tax law issues raised by the role of the federal government in funding and owning the giant atom-smashing project to be built south of Dallas.
To prevent federal monies from being used to pay for debt service, the commission will use a complex four-tier lease agreement involving the federal government, the state, and a newly formed conduit financing corporation.
"It is going to be bonds that are backed by lease rentals that are backed by annual appropriations from the Legislature," said Richard Kornbith, a lawyer at Johnson & Gibbs in Dallas, the project's bond counsel.
Here is how the lease arrangement will work: The Department of Energy will lease the project to the commission, which will sublease it to the newly formed Texas National Research Laboratory Commission Financing Corp.
In the third step, the financing corporation will then lease the project back to the commission for payments equal to an estimated $17 million a year in debt service. Those monies will come from general fund appropriations authorized by Texas lawmakers.
Finally, the commission will lease the Super Collider project back to the Department of Energy, bringing the deal full circle.
It is not yet clear how the rating agencies or investors will react to the structure. Asked how the bonds might be rated, Mr. Carpenter said he expected "something in the As" and said Fitch Investors Service, Moody's Investors Service, and Standard & Poor's Corp. all would be asked to rate the bonds.
Further, it is not clear how would-be bondholders will react to a project that offers no direct security and is largely dependent on a fickle Congress to provide the majority of funding.
"We are going to sell it on the basis that the projct is an essential part of Texas's commitment to build the project," Mr. Carpenter said. "You have to look at the risk of whether the federal government will stop."
He said that even if the federal government does stop the project, officials believe the project would be useful to Texas universities.
The negotiated sale will be the first of two revenue deals anticipated. Texas voters approved the use of $500 million in state-backed general obligation bonds, half of which have already been sold. Lawmakers approved $500 million of revenue bonds to complete the state's $1 billion backing for the project.
The deal is to be underwritten by a group senior managed by Goldman, Sachs & Co. with 10 co-managers; Merrill Lynch; Lehman Brothers; J.P. Morgan; PaineWebber; Smith Barney; Estrada Securities, a Dallas firm; Artemis Capital; First Southwest Co.; Grigsby, Brandford, Powell Inc.; and the Kirchner, Moore & Co. division of George K. Baum & Co.
In other action yesterday, the board approved a $1.3 million revenue bond issue by the Texas National Guard Armory Board. The deal with be sold competitively later this month.
Also, the board approved an $860,220 fiscal 1992 budget for the Bond Review Board. The budget includes salaries for a staff of 11, up from the current six.
Tom Pallard, executive director of the board, said the new personnel will include three people to manage the new debt policy functions assigned the agency and to oversee the private-activity bond allocation process the board will manage beginning Jan. 1.
Also, the budget includes $261,149 in initial start-up costs for the controversial school bond bank program. The funds will be used to pay professional fees and other costs in an effort to reduce the cost of issuance of the anticipated first issue of the $750 million pool program next year.
In a related matter, the board yesterday named Dallas-based First Southwest Co. as financial adviser for the program. The firm was the only regional among eight applicants.
