DALLAS -- The Missouri Environmental Improvement and Energy Resources Authority plans to price a $48.5 million issue today that will be the first Missouri deal to use the broad security of an open indenture.
A group led by First Boston Corp. will price the pool financing for 26 Missouri cities. Moody's Investors Service last week said the deal would carry an Aa rating because of its stronger structure.
Under the program, participating cities use subsidized loans financed with bonds secured by their own pledges. Moneys from both federal and state grants are set aside as a reserve for each city's bonds, which must equal 50% of outstanding principal at all times.
But under a new master trust agreement, any of those reserves that are released as principal is repaid must first be made available to restore a deficiency in any participant's reserve, Moody's said.
Dan Aschenbach, vice president at Moody's, said the structure is already used by New York, Connecticut, and Wisconsin, and that Massachusetts will soon adopt the approach. "It's becoming a more common structure," he said.
For many Missouri credits, the pool program will benefit low-grade credits without hurting top-rated cities also using the revolving fund.
"Moody's has viewed it on a weighted composite basis," said Susan Weil, executive vice president at Lamont Financial Services Corp. in Wayne, N.J., program consultant to underwriters. "The lower credits get pulled up by virtue of the stronger credits, but it doesn't hurt the stronger credits at all. That's the beauty of this structure."
In Missouri, where many rural towns and cities either have no ratings or barely investment grade ratings, the savings from the pool can be significant. In today's bond sale, 39% of the pool benefit cities have stand-alone ratings in the Baa1 range.
"It's a good structure," said Barry Smitherman, vice president at First Boston Corp. in Houston. "This not only provides better interest rates for marginal credits, but gives them access to a pool of money they could not replicate on their own."
The sale today will not be the last time the new structure is used. In fact, the authority has said the state revolving fund program may finance as much as $142.7 million in wastewater projects during fiscal 1993.
"There is a fairly healthy demand right now," said Steve Townley, acting chief of the finance division of the Missouri Department of Natural Resources, which oversees the program. "We are really still in the infancy of this program in Missouri."
Not surprisingly, Missouri cities have been slow to use the program because it uses 100% loans to replace the old system of 90% grants from the federal government and matching money from the state.
"There's been some reluctance, some vain hope that there will be grants again," Mr. Townley said. "They're starting to realize there won't be."
Instead of grants, the federal government is providing moneys to be leveraged through bond programs to finance wastewater projects.
Previously, Missouri has sold two issues for single projects that were rated Aa. It also sold one deal last December for three projects that were rated A1. Last week, Moody's raised that rating to Aa when it issued the new rating for the program.
Ms. Weil said the new structure could improve the overall pricing by as much as 20 basis points. Underwriters declined to speculate on how pricing would go, but said a strong mix of in-state retail buyers and institutions should result in aggressive pricing.
The last pooled financing sold by the authority was a $13.55 million deal sold Dec. 18, 1991, with an average coupon of 6.875%, according to Securities Data Co./Bond Buyer. Since then, the 25-bond revenue index has improved 11 basis points to 6.73% on June 4.
First Boston is bookrunner in the transaction, but the deal includes Missouri-based Huntleigh Securities Corp., Edward D. Jones & Co., and George K. Baum & Co. as well as M.R. Beal & Co. in New York.
"The market is better now than it was on the last deal. I think we're going to see superior pricing levels," Mr. Smitherman said. "We usually get a good response to Missouri paper because there isn't a lot of it out there."
