ATLANTA - Osceola County, Fla.'s recent $150 million transportation improvement bond issue breaks new ground in the state by tapping private landowners for debt service.

The deal was priced on July 24 by a syndicate led by Merrill Lynch & Co. and closed Wednesday.

Five years in the making, the borrowing will finance construction of the Osceola Parkway, a 12, 4-mile, four-lane toll road stretching from the Florida Turnpike in Kissimmee to Walt Disney World's sprawling entertainment complex.

The bonds are backed by no fewer than seven sources of payment, including landowner contributions, toll revenues, additional guarantees, and an insurance policy from Municipal Bond Investors Assurance Corp.

"This is a multifaceted security which I think provides investors a lot of comfort with an innovative idea, said Larry K. O'Dell, public works director for Osceola County. "And I certainly think the financing will be worthwhile for the people of this county in terms of opening up a lot of land for development."

Mr. O'Dell said county planners estimate that completion of the parkway in 1995, and a planned eight-mile extension of the Southern Connector toll road that will parallel it, will double the county's $6 billion property tax base within the next 20 years. The Southern Connector extension will be financed with a $100 million State of Florida bond issue to be sold in the next few months, he said.

The landowners along the planned Osceola Parkway are happy with the parkway deal because it will increase their property values by attracting commercial and residential development, said Nicholas A. Pope, the attorney representing three groups of landowners. Disney Development Corp. is pleased because the deal will give tourists access to its proposed Celebration Township, a recreation area the entertainment giant has planned south of Disney World, Mr. Pope added.

"As far as I can see, this is a win-win situation for everyone," Mr. Pope said.

According to the final offering statement, the debt service will be covered first by three levels of obligatory payments. The first level will be the three groups of landowners along the turnpike, who have agreed to pay a total of $375,000 a year for 10 years to back the bonds.

Reedy Creek Improvement District, the local government unit that lies within Disney World, will make 22 payments of $1 million a year beginning in 1995. The third source of payment will be the net revenues of the parkway itself - toll revenues minus operating expenses - which are expected to grow from about $6.96 million in 1996 to $29.83 million by 2017.

In addition, if the first three levels of debt service coverage do not provide sufficient debt service funds, the issuer has the option of tapping four additional sources.

The first of these contingency sources is a total of $7.5 million in cash from Reedy Creek, beginning with a $4.0 million up-front payment at the time of the bond offering and payments of $1.75 million in both 1994 and 1995. These payments will be deposited in a development fund for debt service if toll road revenues are insufficient.

The second contingency source is a pledge from Reedy Creek to provide up to $525,000 in additional annual coverage for debt service, if needed. If necessary, Osceola County itself would be required to provide up to $1.38 million a year.

Finally, the bond issue will be insured by the Municipal Bond Assurance Corp. through a policy provided by Reedy Creek. On the strength of the insurance, the bonds are rated Aaa by Moody's Investors Service and AAA by Standard & Poor's Corp.

William G. Jahnes, managing director of public finance at Merrill Lynch, the lead manager of the underwriting said he was confident that debt service would be covered by the landowner contributions, Reedy Creek payments, and toll revenues alone.

"We are talking here about a road that makes it a whole lot easier for tourists to get to Disney World," he said. " I don't think there is a question about whether there will be heavy use of it."

According to traffic projections provided to Osceola County by URS Consultants, an average or 24,400 vehicles per day would enter two tollways on the facility in 1995, generating yearly rate of revenues of $7.61 million in 1995. This would rise to over 43,000 by 2010 in 2010, generating $24.4 million.

But given the uncertain history of landowner-backed tollway financings, additional layers of protection such as those provided by the Osceola Parkway bond issue will be necessary to bring investors aboard other such deals, analysts say.

Before the Osceola deal, the concept has been limited to issuers in a few Western states who have used it to open up undeveloped land. And those efforts have lead to at least one conspicuous failure.

In 1987, the Sun Valley, Ariz., Public Improvement Corp. sold a $82 million bond issue backed by landowner assessments to fund a highway west of Phoenix. Since that time, the local real estate market has sourced in Phoenix and the landowners have balked at paying the assessments. Last month, the improvement corporation was advised that the letter of credit provider, Security Pacific National Bank, is considering declaring a default.

"As long as local governments are strapped for funds, we may see more financing like this, with landowners kicking in their own money to back toll road bonds," said Richard Ciccarone, senior vice president and research manager at Kemper Securities Group. "But the deals will probably continue to require a fair number of guarantees, and that could limit their number."

While the security backing the borrowing is complicated, the structuring of the bonds within the deal was relatively straightforward.

A total of $7.1 million of current-interest bonds, priced at par at 6.1% interest rate, mature in 2017. Serial bonds maturing between 2000 and 2008 and carrying rates ranging from 5.15% to 5.95% total $50.4 million. Rounding out the offering are $28.5 million of capital appreciation bonds coming due between 2009 and 2014 and priced to yield between 6.4% and 6.46%.

"There was very good demand for this deal across the board, both from the institutional and the retail side," said Paul G. Kuhns, vice president at Merrill Lynch, lead manager of the underwriting. Mr. Kuhns estimated that issue was oversubscribed by a margin of about three to one.

The other senior managers for the deal were H.G. Nix & Co., Paine Webber Inc., Lehman Brothers, and Smith Barney, Harris Upham & Co.

Mr. O'Dell, Osceola County's public works director, said the state $100 million bond issue to fund the Southern Connector extension which will be sold by Florida's Department of Transportation, will also involve contributions from landowners. In addition, he said, the county has agreed to provide the state $8 million for the project.

"We have a lot of work to do on this deal," a spokesman for the transportation department said, estimating that bonds would not likely be sold before the beginning of next year.

Mr. Pope and Mr. O'Dell said there could be more bond issues for future toll road projects in Osceola County involving a public-private partnership.

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