CHICAGO -- Posey County, Ind. Plans to bring nearly $1.3 billion of short-term refunding debt to market Tuesday or Wednesday for a controversial fertilizer plant, after the state government dropped its support.
Indiana Gov. Mike Pence said earlier this year that the state would not support the project amid U.S. Defense Department concerns about the Pakistan-based company that will own the project.
The Indiana Finance Authority had already issued $1.3 billion of private activity bonds for the project with a July 1 mandatory tender.
Posey County in southwest Indiana, where the plant will be located, agreed to act as conduit issuer to roll over the debt and give the company more time to finalize project details.
The $1.259 billion of economic development revenue refunding bonds will have a mandatory tender date of Feb. 6, 2014.
The extension will give the company, Midwest Fertilizer Corp., owned by Fatima Group, one of Pakistan’s largest conglomerates, time to finalize the project’s details, including real estate acquisitions and management and operation contracts, according to preliminary bond documents.
The eventual long-term financing is expected to be the largest junk-rated private activity bond deal ever, slightly larger than a recent fertilizer plant deal floated by the Iowa Finance Authority.
Guggenheim Securities LLC is the senior manager and Citi is co-senior on the deal. Barnes & Thornburg LLP is bond counsel.
Standard & Poor’s is expected to assign an A1-plus short-term rating to the deal, according to bond documents.
Pence said the state won’t interfere with the county’s decision to move forward with the project. Local officials say the project will bring in $8.7 billion to the area over the next 10 years.
Pence put the project on hold in January, days after taking office. He said U.S. defense officials raised concerns that fertilizer made by the Fatima Group was used in improvised explosive devices throughout Pakistan and Afghanistan.
In May, after a four-month review, Pence formally pulled state support for the project.
The withdrawn subsidy package included $2.9 million in conditional tax credits based on the company’s jobs and investment plans and up to $700,000 in training grants.
The action did not affect the bond proceeds, which have been held in escrow since the December transaction.
“The state of Indiana stands by its decision to withdraw support for the Midwest Fertilizer project since Department of Defense officials still have not been able to independently confirm Fatima Group’s promise to replace their current fertilizer in Pakistan with a formula less susceptible to misuse by hostile forces in the region,” the governor’s office said in a statement.
“Despite a difference of opinion on the matter, Gov. Pence respects the prerogative of local officials to continue to explore the possibility of moving forward,” the statement said.
The IFA, Indiana’s borrowing arm, originally issued tax-free Midwestern Disaster Area bonds in December 2012 with a six-month maturity to give the company time to finalize details for the $1.8 billion project before the disaster bond program expired at the end of the year.
The MDAB program offered special private activity bond authorization to certain areas affected by severe storms, tornados and floods in 2008.
The Midwest Fertilizer Corp. was expected to roll the notes into long-term debt after July. A similar project in Iowa was converted to a $1.2 billion long-term bond financing in April.
The company said since its representatives have met several times with U.S. defense officials about the project, according to bond documents. The company said it has halted fertilizer sales in the two Pakistan provinces that border Afghanistan and reformulated the project to be less explosive.
“Joint testing of the Fatima Group’s reformulated fertilizer product with [U.S. defense officials] is planned to occur within the next few months,” bond documents said.
