CHICAGO -- The Indianapolis Local Public Improvement Bond Bank is scheduled to price $140 million of lease-backed revenue bonds today in what is the first issue in a total of $1 billion of bonds to be sold over the next three years to fund construction of an airplane maintenance facility.

But the bonds will go to market without a rating from Standard & Poor's Corp., which declined to rate the issue because of problems with the way the deal was structured, according to Cathy Daicoff, a managing director at the rating agency.

Moody's Investors Service is expected to assign a rating to the issue today, according to Paul Devine, vice president and manager of the Great Lakes Region for Moody's.

The issue is part of a $291 million, mostly bond-financed incentive package state and local governments in Indiana offered United Airlines to locate a 3-million-square-foot maintenance facility in the state. In addition to the incentive package, the Indianapolis Airport Authority expects to issue about $700 million of bonds backed solely by United lease payments over the next three years to finance the project.

Fred Armstrong, executive director of the bond bank, said proceeds from the 25-year issue will be used to purchase, through private placement, $140 million of bonds issued by the Marion County Convention and Recreational Facilities Authority.

Under Indiana law, the bond bank only is allowed to buy or sell the securities of local governments in Marion County, making the involvement of the convention authority necessary, Mr. Armstrong said.

"The authority is a conduit, basically," he explained.

Mr. Armstrong said the convention authority will deposit $111.5 million of the bond proceeds into a construction fund for United and use the rest to provide capitalized interest on the issue through Jan. 1, 1995.

Indianapolis will make lease payments to the convention authority to pay principal and interest on its bonds. The convention authority, in turn, will remit an equal payment to the bond bank for the bonds it purchased, according to Mr. Armstrong.

After the capitalized interest is used up, the bonds will be backed by lease payments made by Indianapolis. On Monday, the City-County council voted 29-0 to pledge a local income tax to make the lease payments. The tax, which raises about $63 million a year, provides five-times coverage on the lease payments, Mr. Armstrong said.

But even with the high coverage, the Indianapolis issue was structured in such a way that Standard & Poor's could not rate the issue, Ms. Daicoff said.

"We felt there was a significant number of hurdles that had to be overcome," she said. "We did not feel we were able to adequately assess the risks involved to the bond-holders."

A key hurdle, Ms. Daicoff said, was that the city could not begin making lease payments until "Phase One" of the maintenance facility is completed. The city's first lease payment is scheduled for June 1995, while United intends to have the first phase completed by November 1994, according to the preliminary official statement.

Phase One is expected to cost $576 million, $291 million of which will be provided by state and local governments with the remaining $285 million provided by United, according to the preliminary official statement.

Ms. Daicoff said the fact United will be relied upon to raise the funds to complete Phase One made the deal an "unusual" lease transaction and precluded the agency from rating the issue.

"In a traditional lease transaction, you don't have a third-party that has to act before a lease goes into effect," she said.

She added there were no guarantees the facility would be operational by June 1995, nor provisions for Indianapolis to make lease payments to service the bonds if it is not.

James Merten, executive vice president of City Securities Corp., a co-manager on the deal, said Indiana law precludes a government from making lease payments on a facility if it is not ready for operation. He added, however, the law does allow a government to pay a portion of a lease on a pro-rated basis.

"If it's 90% operational, you could make 90% of the lease payment," he explained.

Phillip Genetos, a partner at Ice Miller Donadio & Ryan, bond counsel on the issue, also said more bonds could be issued to provide capitalized interest on the original bonds if Phase One of the facility was not completed in time.

Mr. Merten added that he did not think the fact that only Moody's will be rating the issue will have an effect on the pricing. "The bond bank has had other issues where there was only one rating," he said.

Two other Indiana governments are expected to issue bonds in the next month as part of the $291 million incentive package to assist in financing the maintenance facility.

The Indiana Transportation Finance Authority plans to issue about $156 million of lease-backed revenue bonds some time next month, according to Mark Moore, deputy state budget director. The bonds would be secured by biennial appropriations by the Indiana General Assembly.

The last part of the incentive package is an $8 million bond issue scheduled to be priced Jan. 13 by Hendricks County, according to Hursel Disney, county board president. Those bonds would be backed by the county's economic development income tax.

The airport authority will not issue any of its approximately $700 million of bonds until late 1992, according to Elaine Roberts, airport authority deputy executive director.

The senior manager deal is Lazard Freres & Co. Co-managers are: Merrill Lynch & Co.; Bear, Stearns & Co.; Bank One, Indianapolis, N.A.; City Securities Corp.; INB National Bank; Merchants National Bank & Trust Co.; Raffensberger, Hughes & Co.; and Traub and Co.

The United maintenance facility has been described by Indiana officials as the largest economic development project in the United States. When completed, it will employ as many as 7,000 people earning annual average salaries of $45,000, according to the airline.

United tentatively selected Indianapolis as the location for the new facility on Oct. 23. A project agreement finalizing the deal was signed Nov. 21 by officials from the three governments and United.

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