CHICAGO - Indianapolis plans to sell approximately $290 million of bonds this week, the bulk of which will be used to refund debt sold in 1988 to help finance a still unbuilt retail mall in the city's downtown. To be sold through the Indianapolis Local Public Improvement Bond Bank, the bonds will be secured by the city's moral obligation pledge and property tax revenues from a 150-square-block tax increment finance district. The area incorporates much of the city's downtown.

The refinancing covers $208 million of outstanding bonds sold for the controversial Circle Centre Mall in 1988 and $22 million of bonds the bond bank sold in 1986 for other projects within the district, according to Kenneth Gibbs, a senior vice president at Lazard Freres & Co., the senior manager on the deal. The deal could include some new money, he added.

He said that by refinancing the outstanding debt, which carries interest rates in the 8.5% to 8.7% range, the city hopes to save $15 million to $20 million in current interest on the bonds.

The refinancing, proposed by Mayor Stephen Goldsmith last month, was approved over the last few weeks by the City-County Council, the bond bank board, and the Metropolitan Development Commission, according to Jim Snyder, the city's director of strategic and financial planning.

Officials involved in the deal expressed optimism about its reception in the market despite the fact that the $300 million mall project, which had been scheduled for completion in the late 1980s, is currently just a hole in the ground.

Gibbs pointed to a recent study of the tax increment finance district, commissioned by the city, that shows that new developments undertaken in the district since 1988 will enhance the bonds' revenue stream.

Those developments include new construction by Eli Lilly and Co. and Farm Bureau Insurance, and the addition of three new office buildings and two hotels. Gibbs said the mall will account for less than 10% of the revenue needed for debt service.

In addition to the city's moral obligation pledge, under which the City-County Council will consider but not be obligated to replenish the debt service reserve fund if needed, the deal includes a coverage reserve account.

Snyder said that account will collect any excess incremental property taxes in the district up to $20 million to serve as a safety net for the debt service reserve fund.

While the 1988 bonds were sold with a one-to-one ratio of tax increment revenues to debt service, Gibbs said the addition of the new development in the district and the inclusion of the coverage reserve account increases the ratio range. It would go up to a range of from 1.35 to just over 1.8 times coverage during the 30-year life of the bonds, he said.

Gibbs called the revenue projections in the study "conservative," adding that they do not include any new growth in the district, even though the city expects the mall to attract further development. However, the preliminary official statement for the deal says bondholders could be at risk if the mall is not built or if future assessment appeals on the part of property owners in the district are successful.

The city has spent about $70 million of the 1988 bond proceeds to acquire and prepare the land for the mall. But after he took office in January, Goldsmith ordered a halt to any further city construction on the site until all the financing for the project was in place.

Last week, the final financing piece, a $72.5 million renewable five-year loan, was secured by Melvin Simon & Associates, the mall's main developer, from three European banks. As a result, Goldsmith has ordered construction to restart on an underground parking garage for the mall.

The rest of the financing for the $300 million project comes from a $65 million investment by the Circle Centre Development Corp., which is made up of 14 Indianapolis businesses in partnership with Simon. The mall, which will contain 675,000 square feet of retail space, is now scheduled to open in the fall of 1995.

City and Simon officials have said the delay in starting the mall was due to the slump in the retail industry. Herman Renfro, a vice president of development at Simon, predicts that many of the retail shakeups, which included bankruptcies and high debt loads, have ended.

Simon has agreements with the chain stores of Nordstrom, Parisian, and the Limited to anchor the mall, and is currently looking for specialty tenants such as a movie theater chain and restaurants to lease space in the facility, Renfro added.

Gibbs said the bonds are being targeted for major funds and institutional investors. He added that investors will acknowledge the city's commitment to the project as well as the strength of the downtown district to provide revenues for debt service.

Fitch Investors Service Inc. rated the bonds AA with a stable credit trend, based primarily on the city's moral obligation pledge and credit strengths. The city's credit attributes have earned it an AAA rating from the agency, according to Colleen Woodell, a senior vice president at Fitch.

Steve Murphy, a director at Standard & Poor's Corp., which rated the 1988 bonds A-plus, said Friday that a rating was pending. He said the rating on the new deal would be based on the city's moral obligation pledge and added that the agency was "relatively comfortable" with the coverage on the bonds.

Co-managers on the deal are Banc One Capital Corp.; M.R. Beal & Co.; Bear, Stearns & Co.; City Securities Corp.; Lehman Brothers; Llama Co.; Pryor McClendon Counts & Co.; Raffensperger, Hughes & Co.; Reinoso and Co.; and Traub and Co.

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