Massachusetts officials are considering a plan to refinance Hynes Convention Center bonds to take advantage of falling interest rates and the state's resurgent reputation.
The Massachusetts Convention Center Authority sold two special obligation bond deals, one in 1984 and one in 1985, of which nearly $140 million is still outstanding. The state is responsible for debt service on the bonds, which carry high coupons by today's standards -- as high as 10%.
At a meeting Friday, the seven members of the authority's board moved to explore the possibility of performing an advance refunding of at least some portion of the outstanding convention center bonds before the end of the year.
Preliminary indications are that the state -- which despite its widely heralded recuperation is still facing potential fiscal problems -- could reduce its obligations to the authority significantly if the refunding takes place.
"Such a refunding, at today's interest rates, will bring an estimated $7.5 million of revenue to the commonwealth this fiscal year and thereafter will reduce the authority's annual debt service by approximately $1 million a year," Joseph D. Malone, the state's treasurer and receiver general, said in a news release.
Mr. Malone, the authority's chairman, presided over the meeting Friday at which the proposal was presented, according to the release.
Christopher J. Doherty, the state's deputy treasurer and general counsel, said the board of the Massachusetts Convention Center Authority had voted unanimously to "aggressively pursue that idea [of refinancing] before the end of the year."
To do that, the convention center authority began by forming a three-member subcommittee to examine the refinancing proposal, including such angles as whether to select a new underwriting syndicate and bond counsel for the refunding. A spokeswoman for Mr. Malone said the board would convene early next month to discuss the subcommittee's findings.
Mr. Doherty said a number of bankers have approached the authority with refunding proposals, and that more were expected to do so. "We anticipate that we're going to hear proposals and just figure out what's best for the commonwealth and the Hynes, and just move forward."
Under its 1982 enabling legislation, the authority has the ability to issue bonds and to refinance its debt with the approval of its board of directors.
The convention center authority tapped the market for $100 million in 1984 and for another $100 million in 1985, with proceeds of both issues going to expand the Hynes Convention Center to 748,000 square feet -- more than twice its original size.
Of the two deals, both underwritten by Kidder, Peabody & Co. syndicates, $138.74 million is still outstanding.
According to Jeffrey C. Apfel, a senior vice president in the Boston office of Tucker Anthony Inc., it is not clear how much of that would be refunded.
"The exact number is hard to pin down," Mr. Apfel said, "because it depends on how the bonds would be structured. With the 1984 issue, they're highly efficient as refunding candidates" because of the stratospheric interest rates that prevailed when the bonds came to market.
Term bonds maturing in 2005 included in the 1984 deal came to market with tax-free coupons of 10%. Serial bonds maturing earlier also offered high yields, ranging from 9.8% in 2000 down to a 5.75% for the one-year maturity.
The securities carried the high coupons in spite of their relatively strong ratings of A1 from Standard & Poor's Corp. and A from Moody's Investors Service, which were based on the underlying pledge of the commonwealth.
That pledge has consistently cost Massachusetts money, and will continue to do so. State officials recently projected that Massachusetts would have to contribute $259.2 million to help the authority pay the high-coupon debt through 2006.
According to one banker, who requested anonymity, the only question surrounding the refinancing is, why didn't the state act sooner?
One answer is that the deal was not in the interests of the authority, which might have to work harder to get the refunding done, but would not reap its benefits. In the case of the convention center authority refunding, "The actual legal obligor is not the one who becomes the recipient of the savings," said the banker. "It took the outside interest to say, hey, there's money on the table here, why don't we take it?"
Another question is why the administration of former Gov. Michael S. Dukakis did not press for the refinancing to save the state money, the banker said. "Why didn't someone in the past administration pick up the phone and say, 'Do this?' I can only speculate."
Eugene J. Sullivan deputy director at the convention center authority, said that what may have kept the authority from refunding its debt earlier was that "the numbers didn't look as attractive in the past as they do now."
He also said authority officials would not support the refunding "until we can have the numbers run and analyze them."
Francis X. Joyce, the executive director of the authority since its inception in 1982, did not return phone calls yesterday, but according to the news release from Mr. Malone's office, last week's meeting was marked by a "new-found spirit of cooperation."