NIZ authority looks to save millions on PPL Center debt payments
The development authority overseeing Allentown’s Neighborhood Improvement Zone could save millions by refinancing the debt issued nine years ago to build the $280 million PPL Center, according to its financial adviser.
The authority board of directors on Wednesday authorized a team of professional advisers to further explore the feasibility of refinancing $184 million in outstanding tax-exempt bonds and $18.4 million of taxable bonds nearly a year ahead of a May 2022 call date.
By locking in rates now, ANIZDA could reduce its annual debt payment more than $1 million, from $15.2 million to $14.1 million, said Scott Shearer of PFM financial advisers. Over the next 20 years, that could add up to approximately $23 million in savings, or more than 10% of refinanced debt.
The savings estimates could fluctuate depending on interest rate activity over the next few months, Shearer cautioned. But completing a “forward delivery” refinancing that wraps up this summer is more likely to capture an interest rate well below the existing 5% coupons on tax-exempt bonds and 5.6% coupons on taxable bonds.
The savings would increase the probability each year that ANIZDA would have leftover NIZ tax revenue to return to state and local coffers or put toward public improvements in the 130-acre zone.
Last year, for example, businesses in the NIZ generated $78.3 million in state and local tax revenue in 2020. Depending on how much is diverted in the coming weeks to City Center Investment Corp. and other developers to pay down project debt, the state treasury may or may not recover the $22 million state tax revenue baseline produced a decade ago in downtown Allentown and along the Lehigh riverfront before the NIZ’s creation.
The greater flexibility to pay down debt on PPL Center and other NIZ development projects would also make the development authority look better in the eyes of its rating agency, Moody’s.
The NIZ allows developers to tap virtually all the state and local tax revenue (excluding property taxes) created by their new projects to pay off construction loans. It also enables the development authority to finance certain improvements to public property, such as a planned redesign of Center Square and streetscapes along Hamilton Street.
The forward delivery comes with some risks. Investors will likely demand a higher yield, and in the event of a failed settlement, the development authority could eat some costs associated with preparing the refinancing.