L.A. Aiming for $36M in Savings Through Two April Refundings

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LOS ANGELES — Los Angeles officials hope to capture a combined $36 million in savings through two refundings they have planned in April.

The city plans to refund up to $340.3 million of general obligation bonds through a competitive process on Monday and $280 million of Municipal Improvement Corporation of Los Angeles debt through a negotiated process in late April.

The MICLA bonds will be issued in three series. Loop Capital Markets will act as the senior manager with William Blair as the co-manager for MICLA’s Series 2012A and C. Seibert Brandford Shank will act as the senior manager and William Blair as the co-manager for the Series 2012B.

Los Angeles expects to realize $26 million in par value savings on the GO bonds; and $10 million on MICLA 2012C, the only true refunding in that series. The other two refundings are commercial paper, according to Natalie Brill, the city’s chief of debt management.

Public Resources Advisory Group and KNN Public Finance will serve as co-financial advisors for the competitive sale of the GOs.

The city is returning to the market for a second try on the GO bond sale, which represents half of a refunding the city actually planned to complete last year.

The debt management team originally received City Council approval to refund $600 million of GO bonds in two separate sales on June 21, 2011.

They conducted a refunding on $259.7 million of bonds on July 28, but when it marketed the remaining $340.3 million in October they discovered they would not realize the hoped-for savings, according to a report from chief administrative officer Miguel Santana. But now is a good time to return to the market to realize the savings the city hopes to achieve, the report said.

Officials were monitoring California’s GO sales and also wanted the sale to occur after the city’s investor conference being held Thursday and Friday, Brill said.

MICLA is a nonprofit financing corporation used to finance capital projects and equipment. As of March 1, 2012, Los Angeles had outstanding MICLA notes of $224 million.

The $280 million refunding will refinance commercial paper and refund $119.3 million of outstanding MICLA bonds, according to the report.

Santana recommended that the bonds be sold on a negotiated basis because of the “volatility in the financial markets.” The methodology will give the city more flexibility to issue the bonds when the underwriting team believes it will receive the lowest interest rate on the bonds, he said.

In addition to the bond documents, the mayor and council last week approved a lease-leaseback ordinance on property funded by the MICLA bonds.

On Monday, Moody’s Investors Service assigned the GO bonds an Aa3 rating with a stable outlook, citing the city’s extremely large and relatively stable property tax base, which recorded an uptick in fiscal 2012 after two years of declines, along with a growing local economy.

Los Angeles received kudos for achieving a budget surplus in fiscal 2011, its first in six years, but analysts said the city’s general fund remains structurally unbalanced.

Moody’s on Tuesday assigned the MICLA bonds ratings of A3 for the 2012A capital equipment series, and A2 for both the 2012B and 2012C series, backed by property leases.

“There is a rating philosophy that says that the ratings are about the probability of default,” Brill said. “If that is what one believes, then yes, our rating should be higher. If one believes that the rating is about how one is doing financially, then we are just right.”

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