SAN FRANCISCO — West Hollywood, Calif., yesterday planned to price what underwriter Stone & Youngberg believes is the first Build America Bonds structured as lease-revenue bonds.
The West Hollywood Public Financing Authority priced $40 million in taxable lease-revenue BABs, which receive a direct subsidy from the federal government, along with a $20 million tax-exempt series.
As it prepared the bond issue, the city also received good news from Standard & Poor’s, which assigned West Hollywood its AAA issuer credit rating, along with its AA-plus rating for the lease-revenue bonds. Fitch Ratings assigned its AA rating to the debt.
The city is issuing the bonds to finance a new public library building and parking structures. The tax-exempt side of the deal will refund 1998 lease-revenue bonds issued to construct the City Hall.
The main distinction between these lease-revenue BABs, compared to revenue BABs, is the abatement risk, said Stone & Youngberg vice president Jose Vera.
In West Hollywood’s case, the risk is muted somewhat because a good portion of the value of the property securing the lease backing the bonds is ascribed to the West Hollywood Park, where the library is being constructed.
“If an earthquake occurs the park will still be there,” Vera said.
West Hollywood’s new AAA designation makes it one of only 25 cities in California with Standard & Poor’s gilt-edged rating and 162 nationally, Vera said.
The small city — less than two square miles — has about 37,500 residents, who have per capita income levels twice the national median and live in very expensive properties, with one-bedroom condominiums starting at about $600,000, according to Standard & Poor’s.
“In addition to being a wealthy bedroom community, West Hollywood is a tourist destination, particularly to nightlife attractions on the Sunset Strip,” the agency reported. “There are 15 hotels in West Hollywood, and the weekend population is estimated at 78,000.”
The city also has “exceptional financial reserves” larger than the size of its general fund, analysts said, which should insulate it from expected cuts in state funding.
Stone & Youngberg was sole underwriter. RR Brown & Co. was financial adviser, and Jones Hall was bond and disclosure counsel.
Pricing details were not immediately available yesterday.
