Holley & Pearson-Farrer LLP represented the underwriters of $45 million in recovery zone facility revenue bonds issued by the City of Chicago.

The bonds were issued to benefit Asphalt Operating Services of Chicago (AOSC), a liquids terminal service company that provides safe and efficient storage, handling, and shipment of bulk liquid products for customers in the petroleum industry. The proceeds of the bonds were loaned to AOSC to enable the company to finance the design, construction, and equipping of a liquid asphalt through-put facility to blend, store, and dispose of liquid asphalt on the site of an old Wisconsin Steel plant on the south side of Chicago. Liquid asphalt is the residual heavy oil that is a byproduct of the refining process and is used primarily as a binder for asphalt roads, as well as in the manufacture of shingles, roofing tar, and industrial coatings.

The AOSC project took a previously unused property and converted it into a new facility with 30 to 40 full-time employees. The facility was contracted for use by various companies, including BP Products North America, which produces gasoline, kerosene, distillate fuel oils, residual fuel oils, and lubricants for customers throughout the world.

The bonds were secured by, among other things, a mortgage and first lien on the project, security interests in certain pledged revenues of AOSC, and collateral assignments of three asphalt terminalling contracts, AOSC’s primary sources of revenue.

The bonds were marketed to a limited number (35 or fewer) of qualified institutional buyers pursuant to a limited offering memorandum of the issuer and borrower. Qualified institutional buyers are purchasers of securities that are deemed, pursuant by certain Securities and Exchange Commission laws, to be sophisticated and thus in need of less protection than most public investors.

The bonds were designated as Recovery Zone Facility Bonds. This category of tax-exempt private activity bonds, authorized under the American Recovery and Reinvestment Act of 2009, was intended to stimulate economic recovery in designated recovery zones. Recovery zone facility bonds could be issued to finance certain capital projects for the benefit of a qualified business located or to be located in a recovery zone if companies could clearly represent how their use of the bond proceeds would bring about business expansion and create jobs. Recovery zone facility bonds allowed businesses to borrow funds for commercial, industrial, and retail projects at lower borrowing costs based on federal tax incentives.

The Chicago City Council approved the designation of the City of Chicago as a recovery zone in November 2009, along with the approval for the City to issue $199.8 billion in recovery zone facility bonds. All bonds were required to be issued by December 31, 2010, creating a tight timetable for the deal team.

Significance
  • Designated as Recovery Zone Facility Bonds
  • Tax-exempt private activity bonds
  • Offered to a limited number of qualified institutional buyers pursuant to a limited offering memorandum
Attorneys
Par
$45 million
Issuer
City of Chicago
Closing Date
December 2010
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