BRADENTON, Fla. — West Palm Beach, Fla., today is selling approximately $70 million of new and refunding revenue bonds with plans to be back in the bond market next month.
The city is selling $54.4 million of Series 2008A refunding bonds and $14.4 million of Series 2008B new-money bonds for repairs, upgrades, and enhancements to its combined water, sewer, and stormwater system.
The 2008A bonds are expected to be structured as serial bonds maturing between 2010 and 2029, while the 2008B bonds are expected to mature between 2009 and 2020. The debt is being insured by Financial Security Assurance Inc.
The transaction also is taking out two interest rate swaps associated with the current refunding of the Series 2005 variable-rate revenue bonds in the outstanding amount of $52.87 million with Citi and now-defunct Bear, Stearns & Co. as counterparties. The termination fee, expected to be $2 million or less, will be split between the counterparties.
The swap termination was necessitated because the swaps were insured by Financial Guaranty Insurance Co. and the recent acquisition of Bear Stearns by JPMorgan, said West Palm Beach finance director Randy Sherman.
FGIC, once a triple-A rated insurer, now is rated BBB, Baa3, and BB by Fitch Ratings, Moody's Investors Service, and Standard & Poor's, respectively.
"This [refunding] wasn't intended as a savings," Sherman said. "The [FGIC] downgrades caused rates to spike up and one of the counterparties was Bear Stearns, so that was an issue as well."
The offering began pricing yesterday with both retail and institutional investors showing a lot of interest, even though no term bonds are expected, Sherman said.
The bonds were rated AA-minus by Fitch and Standard & Poor's and A1 by Moody's.
Fitch and Moody's assigned negative outlooks to the debt and expressed a variety of concerns, including affects of the state's extended drought, the impact of Florida's weakened economy on collections, and unanticipated capital needs. Standard & Poor's maintained a stable outlook.
"The city was very pleased they held the ratings even though the outlook was affected in a negative way," said financial adviser Craig Dunlap with Dunlap & Associates Inc. He noted that the city has implemented rate increases expected to help increase coverage and replenish reserves.
Sherman said the negative outlook was expected given problems with the drought and unexpected capital improvements. Despite already having a mechanism to hike rates as water restrictions increased, the structure did not offset the drop in water usage due to the restrictions.
The city then implemented a 48% rate increase and replenished reserves, and took a new look at capital needs.
Those needs will bring the city back to the bond market for the sale of approximately $115 million of variable-rate revenue bonds, which are tentatively scheduled to price on July 22.
Citi, Estrada Hinojosa & Co., and Merrill Lynch & Co. are underwriting this week's sale.
Squire, Sanders & Dempsey LLP is bond counsel. Tripp Scott PA is underwriters' counsel. Steve E. Bullock PA is disclosure counsel.
