Modern building concept for Columbia Capital New Credit Design Case Study

Case Study 08

New Credit

Columbia Capital served as financial and structuring advisor to the Sales Tax Securitization Corporation (STSC), a special purpose entity developed by the City of Chicago under the new state legislation that permits certain home rule entities to create bankruptcy-remote entities to securitize their sales tax distributions from the State of Illinois.

The City authorized up to $3 billion in senior lien sales tax revenue bonds, and subsequently an additional $1.5 billion in second lien bonds. This structure permitted the City to convert a substantial portion of its low-investment grade category GO bonds to ‘AAA/AA’ sales tax bonds. The City saved on average 200 bps per year in borrowing costs in matched maturity years. In addition to normalizing its annual property tax supported debt service at a more sustainable rate of incline over time, which entailed lengthening the resulting period of amortization, the City reduced its property tax levy by $920 million, while simultaneously capturing $415 million (10.4%) in present value savings.

As structuring advisor, Columbia Capital led the finance team in determining which series of outstanding bonds should be refunding across each of the initial four senior tranches and concluding fifth second-lien tranche of the Corporation’s bonds. This process was made more complex by the significant amount of historical “scoop and toss” financing undertaken by the City, necessitating tracing for tax purposes down to the maturity level on the prior bonds to identify remaining economic life as well as legacy working capital allocations.

Columbia Capital worked closely with the legal team on the transaction to support the tax analysis; ensure compliance with the state’s complex property tax levy, extension and collection laws; and, to meet the City’s desires for the overall post-completion structure of its debt portfolio.