San Diego Mayor Jerry Sanders last week announced plans for almost $103 million of new borrowing through a private placement.
The privately placed bonds, to be issued through the San Diego Public Facilities Financing Authority, would finance a variety of deferred capital maintenance projects.
After several City Council members raised questions about how projects were chosen for financing, the council voted to defer action until April 22.
It would be the latest in a series of private placements for San Diego. It has not accessed public debt markets since its comprehensive annual financial report for fiscal 2003 became entangled in the crisis that unfolded after the city revealed in early 2004 that it had not disclosed to bond investors the extent to which it had underfunded its employee pension plan.
The spiraling troubles that followed led to Securities and Exchange Commission sanctions against the city and years of delays for its 2003 CAFR and the reports for subsequent years.
It was only last week that San Diego announced that its auditor has signed off in its fiscal 2006 CAFR, an event that is expected to allow the city to return to the public debt markets within months.
Release of the CAFR led Fitch Ratings last week to revise its rating watch for San Diego to positive from negative. “Fitch’s initial review of the audits reveals adequate operations, debt service coverage, and reserve levels,” the rating agency said.
“This change represents a historic breakthrough for our city,” Sanders said in a statement. “It is the first good financial news that we have received from Wall Street in four years.”
Fitch rates San Diego general obligation bonds BBB-plus. Its outlook revision applies to a total of $1.7 billion of outstanding debt, including lease revenue bonds, certificates of participation, and water and sewer revenue bonds that all carry their own ratings between BBB-minus and BBB-plus.
Before 2004, Fitch assigned San Diego GOs a gilt-edged AAA rating.
The planned private placement will have a 10-year maturity, but is being issued under the assumption it will be refinanced in 2010 with a traditional public bond issue, according to a staff report prepared for the City Council.
For that reason, interest rates on the bonds would increase if they are not refunded in two years, the staff report said.
Bank of America NA is the bond purchaser, Hawkins Delafield & Wood LLP is bond counsel, and Montague DeRose and Associates LLC is the city’s financial adviser.
The city anticipates pricing the bonds in the last week of May.
