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INNOVATIVE SOLUTIONS. PROVEN RESULTS. COLUMBIA

In 2010 Columbia advised St. Louis County, Missouri, on a two-series transaction totaling $121.3 million to provide funding for the construction of an interconnected emergency communications and early warning system that will tie together more than 100 units of local government. Voters approved a 0.10% sales tax in Fall 2009 that will be used for the operation and maintenance of the system, as well as to make debt service payments. Columbia advised on two structuring ideas to avoid difficulties related to the BABs component of the transaction.

First, the bonds provided for capitalized interest well after sales tax collections and distributions actually commenced. This structure permitted the County to build $15-20 million in reserves—outside the trust indenture—that it could use for cost-overruns, as an informal debt service reserve, as a revenue stabilization fund, and/or to support operations. By taking this approach, the County avoided concerns about unspent bond proceeds impacting its eligibility for subsidy in the future.

Second, with the concurrence of bond counsel, Columbia advised the County to fund capitalized interest for both series from tax-exempt proceeds. Bond counsel opined that capitalized interest on the BABs could be funded until the earlier of (a) the placed-in-service date or (b) one year from issuance. Because the project included a number of facets—radio backbone, Enhanced 911 equipment, warning sirens, etc—the finance team was concerned about a relatively easy-to-complete portion of the project being placed into service ahead of the one-year permitted timing, thus causing a compliance problem with the BABs regulations. The other effect of this change was to permit the repayment of the capitalized interest borrowing in the relatively short-lived tax-exempt portion of the structure, reducing the impact of negative arbitrage in the capitalized interest account.

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