LOS ANGELES — A combination of good market timing and factors unique to the credit enabled a San Francisco Bay area redevelopment successor agency to achieve 25% in net present value savings on a tax allocation bond refunding.
The Tracy, Calif. successor agency will save about $800,000 annually on debt service and $11 million on a net present value savings basis, said Steven Gortler, a San Francisco-based independent financial advisor.
That is "pretty impressive for a deal this size," Gortler said.
The $33 million tax allocation refunding bonds priced Jan. 21 in a favorable interest rate environment even in the context of the low rates experienced over the past few years.
The yield on the 10-year benchmark muni general obligation was at 1.72% when the bonds priced, compared to 2.19% six months earlier on May 29, a 47 basis point spread, according to the Municipal Market Data's triple-A scale.
"Market conditions were extremely favorable," said Robert Harmon, the successor agency's senior accountant.
The 2033 maturity priced with a credit spread 87 basis points over MMD's triple-A scale, which is only 9 basis points wider than the much larger, more liquid and higher-rated San Diego Successor Agency deal that priced the week before, Gortler said.
"You would think San Diego would out-price Tracy by better than 9 basis points, but apparently not," he said.
But the successor agency also had the advantage of taking out $16.7 million in unrated outstanding 2003B subordinate series that originally sold with a 6.15% interest rate on the long end, which Gortler said contributed to the savings. The sale refinanced the agency's outstanding $26.8 million 2003A tax allocation bonds and the Series B subordinate bonds into one series.
The 2016 to 2021 uninsured maturities priced at interest rates ranging from 2% to 5% and yields of .5% to 1.35%. The 2022 to 2033 insured maturities priced at interest rates of 3% to 5% at yields of 1.4% to 3.15%.
Assured Guaranty Corp. insured the final 20-year maturities, which achieved an enhanced rating of AA from Standard & Poor's. S&P assigned the bonds an A-plus underlying rating, which is the rating the first five years of maturities carry.
Harmon also attributed some investor interest to recent investments in the city.
The central valley city of 84,691 southwest of Stockton has attracted a 1.1 million square foot Amazon fulfillment center and a 660,000 square feet FedEx distribution center.
Jones Hall is bond counsel and Stifel Nicolaus is underwriter.
