Regional News

D.C. Selling $481M in 2 Deals Next Week

WASHINGTON - The District of Columbia plans to issue about $330 million of general obligation bonds in a negotiated deal Tuesday, followed by a $151 million GO refunding to current refund Series 1998 GOs on Wednesday, district finance officials said this week.

The $329.4 million of Series 2008E GOs are the second half of the district's planned fiscal 2008 GO issuance and will finance various capital projects.

Treasurer Lasana Mack said that the $151.5 million of Series 2008F refunding bonds are contingent on market conditions, which if interest rates seem too high, could delay the deal planned for Wednesday.

"In this volatile market, this is very much market sensitive," said Marcy Edwards, senior financial policy adviser for the chief financial officer's office. "We've been watching the markets on a daily basis ... everything is always subject to market conditions - in particular, a refunding."

Public Resources Advisory Group and Phoenix Capital Partners are financial advisers on the deals.

The new-money portion of the sale will be led by Merrill Lynch & Co. Co-senior underwriters will be Citi and Siebert Brandford Shank & Co. Co-managers on the deal will be Goldman, Sachs & Co., JPMorgan, Banc of America Securities LLC, and M.R. Beal & Co.

Mack and Edwards said Wednesday that the district was seeking insurance bids, but their decision on insuring the bonds would depend on what the bids were and what kind of value they would provide the district.

The senior manager on the refunding bonds is Siebert Brandford and co-seniors are Raymond James & Associates Inc. and Merrill Lynch. Co-managers on the refunding are Morgan Stanley, Wachovia NA, and Loop Capital Markets LLC.

Squire, Sanders & Dempsey LLP will be bond counsel. Disclosure counsel is Hawkins, Delafield & Wood LLP. Underwriters counsel on the new-money deal is Hogan & Hartson LLP and MacKenzie & Associates. Underwriters counsel on the refunding bonds is Graves & Horton LLC and Orrick Herrington & Sutcliffe LLC.

Moody's Investors Service assigned the deals its A1 rating with a stable outlook. Fitch Ratings gave the deals an A-plus rating with a stable outlook. Standard & Poor's had yet to issue ratings on the upcoming deals, but rates the district's outstanding GOs A-plus.

Fitch affirmed its A-plus rating on the district's $4.3 billion of outstanding GOs. Moody's rates the district's outstanding GOs A1.

Moody's A1 rating reflects the district's "greatly improved finances and strong financial metrics relative to other large A1-rated cities, including an ongoing record of operating surpluses and healthy accumulated fund balances."

Moody's said the district's strong fiscal discipline, provided by the district's independent chief financial officer, Natwar Gandhi, also contributes to the rating.

The district has seen robust property value growth, low office vacancy rates, and continued strong construction and development, which is driven by relatively stable federal employment, high-income professional and business services, and tourism, Moody's said.

While the housing market has deteriorated across the country, Moody's noted that the residential real estate market in the district has boomed and has "fared better than its neighbors thus far."

Fitch said the rating reflects debt levels that are "very high" and likely to increase at least moderately given the backlog of deferred capital needs and other borrowing plans. The city's proposed locally funded six-year capital improvement plan for fiscal years 2009 to 2014 totals $3.4 billion, most of which will be financed with GO bonds and equipment leases. The capital improvement plan does not include a number of planned projects and additional debt for these projects could exceed $500 million to $600 million over the next few years, Fitch said.

Gandhi in early July asked the District Council to enact a law that would hold the city's debt-to-expenditures ratio to 10% and be firmly capped at 12%. A bill to do that was introduced by council chairman Vincent Gray in late July and could be considered by the full council when it returns in mid-September. The cap would not include several projects that the district has in the pipeline.

The council also in late July passed a bill that gives the city the authority to issue bonds backed by income taxes - a move that finance officials expect will provide debt service savings and higher bond ratings.

The bill would allow the district to issue income tax bonds as an alternative to GOs.

The district could begin to issue the income tax bonds as early as fall, but that the bill first needs congressional approval. Congress, which is mandated to approve the district's budget and all legislation, has yet to set any dates to consider district legislation.

"Even if income tax bonds become the preferred way to issue bonds, it still doesn't preclude us from going back to GOs, if they would become more favorable," Mack said.



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