San Diego received a warm greeting on its return to the public municipal bond market this week after a five-year absence.
The San Diego Public Facilities Financing Authority sold $157 million of water revenue bonds maturing from 2009 to 2038 at a true interest cost of 4.535%.
Demand was strong enough to allow the city to place more than double the $64 million it expected to sell just a couple of weeks ago. San Diego added a refunding to the deal after a rally on the long end of the market pushed the refunding into the money.
“The bonds were received very well,” said Laksmi Kommi, San Diego’s director of debt management. “Several maturities were oversubscribed,” allowing the city to reduce the rates it was offering after the first day of retail orders.
The deal was sold by a syndicate led by Morgan Stanley. JPMorgan was co-senior manager, Fulbright & Jaworski LLP was bond counsel, and Hawkins, Delafield & Wood LLP was disclosure counsel.
San Diego was locked out of the municipal bond market for more than five years after a 2004 pension-liability disclosure scandal that led to sanctions from the Securities and Exchange Commission and the withdrawal of the city’s rating from Standard & Poor’s.
Several years of financial reforms and the replacement of most of its public administrators and political leadership allowed the city to regain its credit ratings just in time for the deepest credit crunch since the Great Depression, but the city had to refund a $57 million private placement that was maturing.
The combination of a December rally in the muni market and an extensive disclosure effort brought investors to bid for the deal. The city got $382 million in orders for the $157 million of bonds on offer.
Orders were evenly divided between retail and institutional investors, with about $190 million, or 49.7%, from institutions, and $192 million, or 50.3%, from retail. The city allotted $122.6 million, or 78%, of the bonds to retail and $34.5 million, or 22%, to institutional investors.
San Diego’s return to the bond market was reason to celebrate in California’s second-biggest city. Mayor Jerry Sanders singled out the financing team for thanks in his state of the city speech this week — not the usual material for the mayor’s most important speech of the year.
“Because of their work, our bond ratings have shot up, and just yesterday we conducted our first public offering in five years,” he said. “Wall Street investors … believe, as I do, that San Diego is once again an honest partner and a sound investment.”
The deal was rated A1 by Moody’s Investors Service and AA-minus by Standard & Poor’s and Fitch Ratings.
