By Karen Pierog
CHICAGO (Reuters) - Wisconsin's Racine County next week will lock in $110 million, 20-year financing for a major development by Taiwan's Foxconn Technology Group that has undergone changes in scope since it was announced in 2017, the county and a bank underwriting the bonds said.
The planned $10 billion, 20-million-square-foot campus in the southeastern Wisconsin county had been hailed by the White House as the largest investment for a brand new location by a foreign-based company in U.S. history and proof that President Donald Trump was reviving American manufacturing.
But Foxconn's changing plans have raised doubts about how many jobs it will create. Foxconn initially sought to manufacture advanced large-screen displays for TVs and other consumer and professional products at the Wisconsin site. It later said it would build smaller Generation 6 liquid crystal display screens instead and is currently constructing a nearly 1 million-square-foot facility that will begin production in 2020's 4th quarter.
Interim notes Racine County sold in 2017 and 2018 to finance land acquisition for Foxconn will be replaced with $110 million of taxable general obligation bonds carrying maturities from 2020 through 2039 in a deal pricing through underwriters led by Morgan Stanley (NYSE:MS).
Howard Cure, a managing director at Evercore Wealth Management, said investors who buy the bonds the county hopes to pay off with special assessments on the Foxconn development will have to weigh the risks the county could face if the project falters.
"If you buy this paper you have to track the progress of Foxconn," he said.
The sale of the bond anticipation notes, which greatly increased the county's debt burden, led Moody's Investors Service to downgrade the county's rating by a one-notch to Aa2 in 2017.
On Friday, Moody's affirmed the Aa2 rating and a negative outlook, which it said reflects the county's exposure to "risks and uncertainties" surrounding the Foxconn project.
While noting uncertainty over the size and scope of the project, S&P Global Ratings rated the bonds AA, saying that they do not substantially add to the county's debt burden or introduce substantial risk to its credit quality.
Racine County, which is putting its unlimited taxing power behind the bonds, said it has strong protections in its local development agreement with Foxconn.
“We remain encouraged about the progress we’ve seen and continue to see each day on the ground," Racine County Executive Jonathan Delagrave said in a statement.
Still, the bond issue's prospectus said there is no guarantee whether there will be future amendments to Foxconn's contract with the state or if the facility will be constructed in accordance with the development agreement. It added that "no assurance can be provided as to the specific type, size, scope or generation of the facility" that is ultimately built.
Wisconsin's Democratic Governor Tony Evers, who inherited the project from his Republican predecessor and Trump ally Scott Walker, had raised the possibility of renegotiating Foxconn's contract as the project's scope was in flux.
The company fell short of a 2018 employment goal, hiring 178 full-time workers rather than the 260 targeted, and failed to earn a tax credit of up to $9.5 million.
A spokesman for the Wisconsin Economic Development Corporation (WEDC) said on Thursday the existing contract "remains in force" and that the company will submit its 2019 hiring report on Dec. 31.
In an emailed response to questions, Foxconn Technology Group acknowledged "routine engagement and good faith discussions" with the Evers administration "regarding areas of flexibility within the exiting agreement." The company said it is moving forward with plans for a high-performance computing data center and still intends to create 13,000 new jobs.