CHICAGO — Cuyahoga County, Ohio's most populous and wealthy county, is coming to market next week with $101 million of debt that marks one of the government's rare general obligation bond sales.
It is Cuyahoga's first GO borrowing in nearly five years, and could be its last for another five, officials said.
"We have a fairly sizable fund balance, and have had no cause for issuing GO bonds," said Wade Steen, the county's fiscal officer. "The last time was four or five years ago, and we're going to have to be out of the market for a while until our assessed valuations come back up."
The transaction also marks the first GO deal under Cuyahoga's new form of government, an elected executive with an 11-member County Council that replaced a three-commissioner board that had been dogged by corruption scandals and indictments.
The new government took office in January 2011 and is still working to shrug off the lingering impact of a 2008 federal corruption investigation into contracts that ensnared major county executives, including the treasurer.
Under County Executive Ed FitzGerald's administration and the new council, Cuyahoga has codified a strong reserve-fund policy, instituted the state's first two-year county budget, and made economic development a part of the county charter.
"The new executive took office in 2011, and in that period of time we have really reorganized the county and made it more efficient," said Steen.
Cuyahoga is home to Cleveland, considered the economic engine of northeast Ohio.
The city and the county are in the midst of several high-profile and costly economic development projects, including a $486 million convention center and medical merchandise mart set to open next summer.
The medical mart is aimed at building up the local health care industry in the region, which includes the prestigious Cleveland Clinic as well as University Hospitals and county-owned MetroHealth.
All three major rating agencies affirmed their high double-A ratings on the county ahead of next week's sale.
Fitch Ratings and Standard & Poor's rate Cuyahoga's unlimited-tax general obligation bonds AA-plus, while Moody's Investors Services assigns an equivalent Aa1.
All three agencies maintain a stable outlook on the credit.
"The county has always had strong financials," Fitch analyst Karen Wagner said. "Their reserve levels are very high and very conservative, and that's the key driving force behind the county's rating."
The focus on economic development is also important, Wagner said.
"The new management is very focused on economic development, and they've included it as core to the county's mission," she said, citing the medical mart, a new casino, and a $272 million residential and commercial project called Flats East Bank.
"It's very impressive what's going on in Cleveland," Wagner added.
Cuyahoga County's strong fund reserves have helped offset potential volatility from economically sensitive revenue sources like sales tax, which made up more than 60% of the county's general fund in 2011.
In May 2012, the county codified a fund balance reserve at 25% of the general fund operating budget, according to Standard & Poor's.
"The new management has been very proactive in taking measures to cut costs by making their government more efficient, and that's been one strength," Standard & Poor's analyst Carol Hendrickson said.
"On the economic development portion, the county has begun several initiatives that, should we see significant results, we could potentially improve the ratings, but that would be over the longer term," she said.
A new casino opened last year in Cleveland, and the county plans to use its piece of the annual revenue - expected at roughly $10 million - solely for economic development projects.
The casino is one of four new gaming facilities that opened in the state's largest four cities last year and next year.
Revenue will be divided among local governments based on population. Host governments will get a bigger piece of the revenue.
"Our policy decision here was to use those dollars for economic development," Steed said. "Many local governments are using the dollars to prop up operations where there have been state cuts, but the intent wasn't to replace operating dollars."
The county is hoping to get its 2010 audit released by Monday before it hits the market.
The federal corruption scandal delayed the release of the 2009 audit, which in turn delayed the 2010 and 2011 reports. The county released the 2009 audit last summer, and, with 2010 released next week, hopes next to get 2011 released by the end of the year, Steen said.
The county plans to price the deal Monday and Tuesday. It is a mix of taxable and tax-exempt, new-money and refunding debt.
Stifel Nicolaus & Co. is the senior manager on the deal and KeyBanc Capital Markets Inc. is co-senior.
Loop Capital Markets LLC is co-manager. Squire Sanders is bond counsel and Prism Municipal Advisors LLC is financial advisor.
The $101 million issue includes roughly $63 million of new-money bonds and $37 million that will refund bonds originally issued in 2004.
Proceeds from the new-money piece will be used to finance various capital projects, including renovations at the county jail, fairgrounds, and airport.
The finance team expects to see a net present-value savings of more than 10% on the tax-exempt refunding bonds and 8.3% on the taxable bonds.
Steen said that the finance team decided to issue some of the refunding bonds as taxable, despite the fact that they were originally issued as tax-exempt, because the county has since sold the buildings that were renovated with proceeds from the 2004 bonds.
"It's been an interesting and tricky deal to put together to make sure we've dotted all our i's and crossed all our t's," he explained.
Separately, the county plans to come to market next spring with a small tax increment financing-backed deal tentatively sized at around $8 million.
Proceeds from the deal will be used to help finance a hotel attached to the convention center.
Stifel will be the senior manager on that deal, Steen said.
The county is also working on an economic development program that will build up a fund that officials hope to total around $100 million dedicated to economic development projects.
County officials plan to do a direct placement with Keybanc for the initial financing - estimated at up to $50 million - and take the loan out with longer-term bonds sometime next year, according to Steen.
Cuyahoga County has $338 million of outstanding general obligations bonds and $450 million of non-tax revenue backed bonds.
