SAN FRANCISCO - San Diego County plans to sell $85 million of tax-exempt certificates of participation next week to refinance its main jail and courthouse.
The county is hoping to draw retail interest, with strong credit ratings and serial maturities from 2010 to 2025. The current refunding will take out COPs sold in 1997 and 1998 to finance construction of the county's Hall of Justice and Central Jail. The debt is being sold through the San Diego County Capital Asset Leasing Corp.
The county is hitting the market at a good time for highly rated tax-exempt issuers. Investors have been clamoring for tax-exempt supply - especially in the front half of the yield curve - in recent months. The Build America Bond program has pulled supply out of the tax-exempt market just as investors returned to munis amid successful government efforts to stabilize the broader financial markets.
The county expects present-value savings of about 6.5% on the debt, said Ebony Shelton, finance director for the county's finance and general government group. That will free up more than $800,000 annually for the general fund.
"The timing just worked out perfectly," Shelton said. She has been working on the deal since the spring and watching her expected savings rise as the muni rally strengthened.
The Bond Buyer 11 index fell to 3.79% last week, the lowest in four decades.
San Diego County is the third-most populous in California, and despite some collateral damage from the state's budget crisis, the county's ratings were reaffirmed ahead of the deal.
The county's general obligation debt is rated AAA by Standard & Poor's, AA-plus by Fitch Ratings, and Aa2 by Moody's Investors Service. The COPs are rated one notch lower by Standard & Poor's at AA-plus and by Fitch at AA. Moody's rates the debt two notches lower than the GO debt at A1 because it is an abatement lease.
Like other California counties, San Diego has been hit by state budget cuts this year, but the county came into the downturn with deep reserves and a tradition of cutting spending budget when state funding falls.
The county's unaudited unreserved general fund balance for fiscal 2009 was $897.9 million, or 26.4% of expenditures. That's down a bit from 28.9% in fiscal 2008, but well above the 17% of expenditures that county financial policy requires.
"We believe that San Diego County can successfully manage the recent trend of softer revenue performance, as evidenced by its stated commitment to pass through cuts in state aid programs as they occur and to balance its discretionary budget to meet its reserve targets," Standard & Poor's analyst David Hitchcock in said a report.
RBC Capital Markets is senior manager on the deal. Bank of America Merrill Lynch and Loop Capital Markets are co-managers. Gardner, Underwood & Bacon LLC is the financial adviser and Orrick, Herrington & Sutcliffe LLP is bond counsel.
