APS Votes Bonds To Pay For
Match Factory

The American Philatelic Society will offer one-year variable-rate tax-exempt bonds to help pay for the purchase and renovation of the Match Factory as its new headquarters.
(Click map at right for a larger view.)
(Click here for a larger, more detailed map courtesy of American Philatelic Society)

The bonds will be managed by PNC Capital Markets, the top underwriter of tax exempt bonds in the state of Pennsylvania for the past five years.

The society's board met Saturday, July 21, at APS headquarters in State College, Pa., to hear a presentation from PNC.

While interest for the tax exempt bonds is being paid at one rate, the money from the sale of the bonds will sit in an investment drawing interest at the taxable rate. The difference the two rates — usually 2-4% — is called "arbitrage."

According to conservative projections presented to the Board, a net sale of $5.5 million, with a 2% spread between the borrowing costs and investment returns would yield an investment fund balance of nearly $21 million after 30 years. That includes a $3 million payoff in the third year of the bonds from the sale of the present APS building.

The Standard & Poor's bond rating service visited the Match Factory site on Monday, and indicated it liked the project. A rating should be issued in about a month.

Linda Eremita of PNC Capital Markets said the firm expected a S&P rating for the bonds of Triple-B Minus, the minimum for obtaining insured financing. She said that S&P likes groups that borrow to preserve their cash.

Eremita said the likely buyers for the 30-year bonds, which can be prepaid at any point without penalty, are institutions, especially money market funds, and not individuals.

The use of historic tax credits was not recommended by PNC Capital Markets, which cited the conflicts between commercial for-profit usage. The realization from the sale of the tax credits would have yielded less than half a million dollars.

PNC Capital Markets is a separate subsidiary of PNC Bank, operated independently from other subsidiaries, including the one presently handling APS investments.

You can discuss the Match Factory bonds in our Message Board.