The South Carolina Employment Economic Development Authority has completed the first round of financing for a bond liquidity program to help local governments affected by the COVID-19 pandemic.
JEDA created RecoverSC in June, while Congress struggled and, ultimately, did not provide financial assistance to local governments to follow up on the original CARES Act of March, while the pandemic continued to gain strength.
The liquidity program is designed to help financially stressed local governments in South Carolina close budget gaps caused by lost revenue, delayed tax collection or increased spending due to the coronavirus pandemic.
The program’s first two bond sales, which totaled more than $ 11 million, closed in the fourth quarter of 2020.
RecoverSC has up to $ 100 million in full escrow authority that can be made available to qualified municipalities and counties across the state.
Although JEDA was no stranger to the municipal bond market, this program was unprecedented, said Brent Robertson, managing director of Stifel, Nicolaus & Co., the placement agent for the first two issues.
“COVID-19, being an extraordinary health problem across the country, has certainly had an impact on local government finances across the country and South Carolina is no exception,” said Robertson. “RecoverSC represents a true collaboration of the securities council (Parker Poe), JEDA as the conduit issuer and the entire transaction team to create a unique and easily accessible liquidity option for South Carolina cities and counties that are feeling the pressure on the current environment. “
JEDA is a statewide conduit issuer for decades of special bond revenue bonds, both tax-exempt and taxable. The authority is self-sufficient and operates only on revenue generated through its bond programs, at no cost to state taxpayers. He was credited with creating or saving more than 252,000 jobs in the state through his activities.
Since its creation in 1983, it has sold more than $ 12 billion in bonds in 548 issues. Since 2010, it has sold about $ 3.4 billion in debt with the largest issue in 2018, when it offered more than $ 1 billion in bonds.
In the RecoverSC program, JEDA issues a bond on behalf of a local government and provides it with income. The funds can be used for a variety of purposes, including operating expenses, capital improvements or debt service payments.
Municipalities repay the debt with an annual allocation. Since participation in RecoverSC is treated as a current operating expense, the bond does not count against the state constitution limit of 8% of the debt capacity. The repayment term is 10 years, the first five years with interest only. However, a local government can pay in advance at any time without penalty.
The first round of financing last year included two issues of taxable bonds, which were acquired by Rosemawr Management, an alternative investment management company focused on investing in the municipal, nonprofit and sustainable sectors.
The city of Columbia (US $ 10 million) and Bamberg County (US $ 1.325 million) participated in the program’s first round of financing. Rosemawr did not demand a rating of the titles, just an affirmation of what the current rating level was for each participant.
Columbia general bond securities are rated AA-plus by S&P Global Ratings and Aa1 by Moody’s Investors Service, according to city disclosures on the Municipal Securities Rulemaking Board’s EMMA website. Bamberg County has an S&P issuer credit rating.
“This is a significant aspect of this program,” said Robertson. “The investor (Rosemawr) does not require a separate rating for any security issued under RecoverSC. Instead, the existing underlying ratings of the local governments that are signing up serve as part of considering how much they can borrow from RecoverSC and also what their interest rate will be. Notably, the lack of an underlying classification does not automatically exclude a city or county from participation. This aligns well with RecoverSC’s goal of being as widely accessible as possible to needy local governments. “
He said this helps to make the program unique and particularly suited to the current environment.
“If it had been their responsibility to go through a rating process, that would have slowed down – and understandably when you get a public rating – it slowed down execution, and one of the things that JEDA was trying to put together was a program that was very affordable and quickly put money in. hands of local governments that needed it. “
Robertson said the program was never intended to be a single solution to all of the local government’s problems.
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“It is just another arrow in the quiver for local governments to address the reduction in revenues or the increase in expenses resulting from COVID. Stifel is proud to have helped create a unique approach to address the unprecedented challenges faced by local governments. “
For 2021, Robertson said that JEDA will look to see if there will be a continuing need to use the remaining $ 89 million of the authorized liaison, depending on whether there will be federal aid or relief for states and local governments and the duration and severity of the COVID Virus -19.
There is no doubt that municipalities across the state are suffering economically.
In November, the South Carolina Council of Economic Advisers predicted only a modest increase in revenue for the state’s next fiscal year, saying that “the COVID-19 pandemic has increased economic uncertainty and will continue to restrict the state’s growth.”
The BEA projected that the state’s general fund revenue would increase 1.7% in the fiscal year 2021-2022, about half of its historical levels. In the 2018-2019 fiscal year, growth was reported at 8%.
The board reduced its revenue estimate for the current fiscal year by $ 49.7 million. With the November adjustments, the BEA reduced the revenue estimate for the 2020-2021 fiscal year by $ 803.7 million since February due to the impact of COVID-19 and the resulting recession.
“The uncertainty about COVID-19, the decreasing impact of previous federal stimulus funds, a slowing economy and a weak tax filing season scheduled for April are significant concerns for the rest of the fiscal year,” said the BEA.
However, the council said there was resilience in the state’s economy and noted that “South Carolina is positioned to recover more quickly from the effects of the COVID-19 pandemic than the rest of the country. To date, South Carolina has recovered 70% of COVID-19-related job losses, but the remaining jobs are expected to return slowly. “
The council expects a return to pre-pandemic employment from February 2020 until February 2022 and assumes slower-than-normal growth for the remainder of fiscal year 2021-2022. Furthermore, it does not expect any new federal stimulus. The BEA will review its forecast again next month.
State bonds are rated Aaa by Moody’s Investors Service, AAA by Fitch Ratings and AA-plus by S&P Global Ratings.