Port Authority ready to deal with Heidelberg
By Kevin Risner, krisner@advertiser-tribune.com
After 20 years of operation, the Sandusky County-Seneca County-City of Tiffin apparently has its first financial deal beyond a railroad transaction. The port authority approved a resolution authorizing the issuance of lease obligation bonds for Heidelberg University.
The university has five bonds with a total outstanding principal owed of about $16.6 million. The bonds originally were issued by the State of Ohio Higher Education Facility Commission for buildings and improvements on the campus. Fifth Third Bank is the local letter of credit bank.
Richard Raymond, vice president of business affairs for Heidelberg University, met with the port authority Friday to explain the benefits for the university, its students and the community. Raymond said entities that buy the bonds as lenders have the option of tendering the bonds back to the bank for repayment. In recent months, with the national economy and the banking climate struggling, bond holders have been tendering the bonds.
When a bond holder tenders a bond to the bank, the bank could demand payment in full from the university. The bank has chosen to not do so.
Instead, the bank charges the university interest until another buyer can be found for the bonds. Interest rates tend to fluctuate, Raymond said, subjecting the university to some uncertainty for debt payments.
Fifth Third has given Heidelberg time to find a different financing solution for the debt.
Without a solution, Raymond said the university could be forced to increase fees to students, raising the cost of education at Heidelberg and potentially jeopardizing jobs at the university.
The port authority can provide the solution with a conduit lease transaction.
With the port authority serving as a conduit, the debt can be restructured in a long-term lease agreement with Fifth Third. Bonds no longer would be subject to tendering, the university would no longer be subject to volatile interest rate changes, and the university would not be pressured to raise its cost for education.
Jerry Arkebauer serves as a consultant for the port authority. He explained how the port authority can serve as the conduit.
"This is strictly the port authority in the middle to help facilitate this transaction," Arkebauer said.
The port authority would lease the university buildings associated with the bonds from Fifth Third and issue the lease obligation bonds to cover the total debt of the five current bonds. The port authority would at the same time execute a lease agreement with the university, sub-leasing the buildings to the university.
The university essentially would be dealing directly with the bank to satisfy the restructured debt, but with a better financing structure.
For its part, the port authority would receive a fee based on the amount of the lease obligations.
Emmett Kelly of Bricker and Eckler was present to discuss the agreement as bond counsel for the port authority.
"This is right up the ally of what other port authorities are doing," Kelly said.
Kelly said he is to review all documents to help protect the legal interest of the port authority. He said all efforts would be made to hold the port authority harmless from any liability.
Arkebauer said a similar transaction was recently done between the Blanchard Valley Port Authority and the University of Findlay, so there are other transactions to use as guides to make sure the deal is done right.
Port Authority Chairman James Supance abstained from the vote on the resolution because of a conflict of interest.
As an interesting point, the proposed transaction was made simpler by a portion of the federal stimulus package passed into law just days ago. The stimulus bill provided a change allowing port authorities to borrow up to $30 million in lease obligation bonds. Before the change, port authorities were limited to $10 million. Without the change, Heidelberg University would have had to establish transactions with two different port authorities to finalize the new financing.
