ATLANTA -- Dade County, Fla., yesterday braved an uncertain market to price what its officials described as the first tax-exempt bond issue backed solely by court filing fees.
The $26.5 million offering of special obligation debt, which funds the purchase of a 30-floor office building for the county's court system, is also apparently the first Florida debt issue on which a Hispanic-owned firm serves as lead manager. Book-runner Guzman & Co., which is based in Miami, was joined by three co-managers on the issue, all located in the Miami area: First Equity Corporation of Florida, AIBC Investment Services Corp., and American Government Certificates & Funds Corp.
"We see this financing as giving us a good alternative to going the [general obligation] route," said Edward Marquez, the county's director of finance. "It has also been a good test of the ability of the local firms here to market our bonds. They passed the test."
The key to the issue, Marquez said, was obtaining an A rating from Moody's Investors Service.
The county did not seek a rating from any other rating agency, according to officials. Guzman's president, Leopoldo E. Guzman, said that the issuer considered obtaining insurance or a letter of credit for the bonds, but concluded the route would bring no cost benefit.
"As far as I can see, this is a unique credit, but we also felt the security was very solid, given the size of the county's court system and its proven track record with the filing fees," said John Incorvaia, a Moody's vice president.
Incorvaia noted that other issuers have used court filing fees to help secure a bond issue, but have always backed up this revenue stream, often with a general obligation pledge.
Moody's rates Dade County's general obligation debt only a notch higher, at Al. Standard & Poor's Corp. rates the county's GOs A-plus.
In a report issued last week, Moody's said the A rating was based on a "relatively broad-based number of cases on which the fee was imposed and the remaining latitude to increase fees if necessary."
The fees include all filing and service charges assessed by the state's 11th Judicial Circuit in Dade County, including the Probate Court.
According to county figures, the 11th Circuit is the largest in Florida, covering 2,600 square miles and a population of 2.3 million, and ranks among the five largest state court systems in the nation.
Moody's also said that because fees involve filings in civil court that require upfront payment, "there is little concern over delinquencies." In addition, Moody's noted, the bond issue will have a fully funded debt service reserve.
In fiscal 1993, according to the county. there were 108,757 circuit and county court cases on which a fee was imposed, generating more than 5.3 million, enough to cover 2.55 times debt service on special obligation bonds.
Although this was less than the 112,428 cases in 1992, Incorvaia said that collections so far this year show that the volume of filings has stabilized. According to county figures, there have been 61,486 paid circuit and county court cases through April 30, the first seven months of the county's fiscal year, which ends Sept. 30. This compares with 61,610 during the same period in fiscal 1993.
Based on an increased fee schedule passed by the state legislature last year, county officials expect more than $9 million in revenues this fiscal year, covering estimated debt service of 4.3 times.
For the next fiscal year, officials expect even better debt service coverage, at 4.58 times, based on $9.6 million of revenues.
Yesterday's pricing came as the market firmed up after three straight sessions in which interest rates rose on fears about the weakness of the dollar. The deal also had in its favor light recent issuance of Florida debt, particularly in uninsured bonds, portfolio managers said.
"I really cannot find anything wrong with this deal: We are comfortable with the coverage, and the yields seem attractive, and we could use this kind of paper," said Rafael Costas, senior research analyst at the Franklin Group. Franklin's Horida Tax-Free Trust is the largest Florida-specific bond fund, with about $1.3 billion of assets.
The bonds were initially priced with serials from 1995 to 1999, priced at par to yield between 4.55% and 5.25%. The remaining serials, coming due between 2000 and 2004, were priced at a discount, yielding between 5.35% and 5.95%. Three term maturities were also priced at a discount, maturing in 2009 to yield 6.35%; in 2014 to yield 6.55%; and in 2019 to yield 6.6%.
Late in the day, the 2009 maturity was repriced to yield 6.33%; the 2014 maturity, 6.53%.
"It looks like we picked the right day to price," said Guzman, noting that the issue was oversubscribed. He said the award will be awarded today with delivery on or about July 7.
County commissioners have authorized up to $50 million of the special obligation bonds, but in order to issue any of the remaining $23.5 million, total special obligation debt outstanding must meet a coverage test of three times. The additional bonds would be used to fund $14 million in renovations for the building purchased, with the remainder used to fund renovations of other county judicial systems, according to Lidia Monzon-Aguirre, director of the county's division of bond administration.
Monzon-Aguirre said the county would not sell additional court fee filing debt this year if it passes a $527.3 million GO bond referendum for judicial facilities scheduled for September.
The county has had a good track record in passing bond referendums. Voters approved not only the county's last referendum, held in 1986, but also its most recent referendum for criminal justice purposes, which was approved in 1978.