WASHINGTON -- Kansas City, Mo., officials are eyeing what could be the biggest municipal lease deal ever -- a $1.5 billion taxable lease revenue bond offering to finance a new McDonnel Douglas Corp. aircraft plant.
The lease financing plan is a key part of an incentives package the city is offering to lure the company into building a new jumbo jet construction plant there. Nine other cities are in the running, and the company is expected to announce its decision at the end of the year.
City finance officials, in a plan they developed earlier this year with the local firm, B.C. Christopher, are offering to issue long-term, lease-backed bonds to raise money for the plant, possibly through the city's Industrial Development Authority.
The bonds, which would be retired with the corporation's lease payments, would be secured by the plant and equipment. City sources, who asked not to be identified, said the city is not ofering to back the bonds, and they would not be eligible for tax-exempt status like most municipal lease offerings.
If the lease offering wins the approval of McDonnel Douglas officials, who are staying officially silent on the selection process, it could be the largest on record.
According to Securities Data Co./Bond Buyer, the larget previous lease offerings were a $500 million certificates of participation deal by the Arizona Municipal Financing Program in July 1986 and a $350 million lease revenue bond offering by a Washington County, Pa., authority in August 1986.
Municipal analysts say the Kansas City plan -- while unusual in its size and lease structure -- may be only the latest of a new crop of industrial revenue bond-like offerings that states and municipalities have dreamed up recently to lure highly leveraged businesses into building plants in their areas.
"It's an innovation and a different use of leasing, but I don't know if it's a revolutionary new idea," said Neal Atterman, vice president at Kidder, Peabody & Co. "It shows a renewed competition to attract industry which we have not seen since before 1986," when industrial revenue bond issues were not as greatly restricted as they are now by federal tax law, he said.
The proposed Kansas City deal is similar to a $900 million financial incentives package -- with a lease financing component -- that Minnesota officials recently offered Northwest Airliens to build flight training facilities at the Minneapolis-St. Paul airport, said Mr. Atterman and Nancy Utterback, a Kidder vice president.
With the recession proving stubborn, the financially struggling airlines and other large corporations are interested in such deals because they need to avoid accumulating more debt, the analysts said.
McDonnell Douglas has a "decent" credit rating of BBB, A-3 form Standard & Poor's COrp right now, Ms. Utterback said, but because it has a great deal of debt outstanding -- nearly $3 billion -- it may not be able to take on much more debt withou endangering that rating.
Other analysts agreed that the attraction for McDonnel Douglas is that the lease financing would give the corporation an "off-balance sheet" method of financing the plant, limiting damage to their credit standing.
However, some analysts cautioned that the rating agencies and sophisticated investors would not be fooled by the "cover" given by the city agreeing to issue the bonds. "McDonnell Douglas would be written all over the bonds. The holders will know who the issuer is," Mr. Atterman said.
Ms. Utterback said the company could, in fact, be downgraded by the credit agencies, if they believed the lease issue plunged the company too deeply into debt.
In any case, city sources consider their plan a long shot in attracting the corporation, especially since the city failed to win the endorsement of Kansas City voters for a key part of the financing plan last August.
As originally envisioned, the city was to contribute $90 million of tax-exempt bond to the financing which would be used to build roads, a railroad spur, and other infrastructure necessary to improve the plant site on the outskirts of the Kansas City airport.
However, voters scotched that plan on Aug. 6 when they rejected a proposed 18% increase in property taxes that was needed to pay off the bonds, City sources said that the cost of financing the improvements will now have to be borne by McDonnell Douglas, making it less likely that the corporation will choose to locate there.
