County Authority Bringing Los Angeles Redevelopment Refunding

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Closeup of four skyscrapers in Bunker Hill

LOS ANGELES — A refunding deal assembled by a Los Angeles County joint powers authority triggered some positive rating actions for debt issued by the former Community Redevelopment Agency of Los Angeles.

Wednesday's $188 million refunding of debt from the CRA/LA will be the largest deal from the County of Los Angeles Redevelopment Refunding Authority, formed in 2013 to help redevelopment successor agencies in the county refund bonds for interest-rate savings.

Stifel is lead book runner, with Citi co-manager, Orrick, Herrington & Sutcliffe as bond counsel, KNN Public Finance as financial advisor and Stradling, Yocca Carlson and Rauth as underwriting counsel.

"Everything will be sold at a premium structure at coupons of four or five percent," said Doug Baron, director of public finance for the Los Angeles County Treasurer and Tax Collector. "The yields are anticipated to be two to three percent depending on the issue's maturity date."

Pretty much every deal in the market is pricing at a premium structure, where the coupons are higher than the yield right now, Baron said.

Standard & Poor's assigned the two series being sold this week its A-plus rating.

In connection, it also upgraded series 2007A revenue bonds for the CRA/LA's Grand Central Square project area by six notches, to AA from BBB. The debt, secured by Bunker Hill project area revenues, will benefit from a very large increase in coverage to 38.0x following the refunding, according Standard & Poor's.

The county expects to realize $20 million in present value savings from the CRA-LA successor agency deal, for a total of $40 million in gross debt service savings for the $383 million in refundings it has conducted since it started the program.

When the county formed the JPA only a handful of refundings had been conducted by the state's more than 400 redevelopment agencies after the agencies were dissolved in early 2012 when state law eliminated redevelopment.

The JPA's first deal in November 2013 refunded a par amount of $153 million for $24.2 million in gross debt service savings for 13 series of bonds for seven successor agencies.

Over the last 18 months, there have been over $2 billion in refundings for redevelopment successor agencies throughout California representing roughly 20% of the debt statewide, Baron said. Redevelopment bonds were issued through 2011, so there will be opportunities to refund through 2021 when the bonds become callable, Baron said.

The county's program was designed to be a 10-year program, he said. The county plans to issue at least another $200 million in 2015, and possibly quite a bit above that, Baron said.

"This market is very strong in 2014," Baron said. "Investors and the rating agencies are comfortable with the structure and understand it at this point."

The former redevelopment agencies captured the incremental property tax growth in redevelopment zones. The state dissolved the agencies with the intention of redirecting that property tax revenue to local governments and school districts, while repaying the debt and other obligations of the former agencies.

The redevelopment successor agencies are allowed under state law to refund bonds for debt service savings.

The JPA was created because the county recognized that there is little incentive for the successor agencies to do refundings, and because the county, which issues a variety of long-term and short-term paper annually, has the staff and the expertise, Baron said.

While S&P analysts Sarah Sullivant and Matt Reiner said most of the successor agencies S&P rates are doing a good job of managing post dissolution cash flow, they rate on a credit-by-credit basis.

The county's JPA acts as an intercept capturing the money to pay debt service before it reaches the successor agency, mitigating some of the cash management issues, she said.

More significantly, the refunding pledges tax increment from all 31 of Los Angeles' vast and extremely diverse former redevelopment areas, not just from the Bunker Hill redevelopment area, which comprised a very small, concentrated area, Sullivant said.

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