LOS ANGELES -- California’s State Public Works Board leads the new issue calendar this week with $625 million of lease revenue bonds to finance construction of a new courthouse in San Diego.
RBC Capital Markets and Goldman Sachs & Co. are joint senior managers on the deal, which is expected to price on Thursday following a retail order period on Wednesday.
About $511 million of the proceeds will finance the construction of a new central courthouse in San Diego. It will replace multiple courthouse facilities throughout the city that are outdated and deficient.
The new 704,000 square-foot building will be 22 stories with 71 courtrooms. Construction is estimated to begin in February 2014, with an estimated occupancy date of October 2016.
The remainder of the deal’s proceeds will be used to finance the construction of an animal health and food safety laboratory for the California Department of Food and Agriculture. The new building will be funded by $42 million of bond proceeds, and approximately $5 million of cash appropriations to the CDFA.
The new 47,500-square foot laboratory will be equipped to process avian and livestock sample submissions for complex diagnostic procedures to support ongoing food production, food safety, and animal welfare programs.
“The SPWB is the state’s primary means of financing state facilities, with bonds benefiting from a strong lease structure and the essential nature of leased assets,” according to Fitch Ratings, which assigns the bonds an A-minus rating and stable outlook.
Debt service on the bonds is paid from lease rental payments made pursuant to specific project leases. The payments are appropriated annually by the legislature, with the lessee agencies — the CDFA and the Judicial Council — required to use the first funds lawfully available for lease payments on the debt.
Fitch’s rating is one notch below the state’s rating, reflecting the appropriation required for debt service payment, as well as solid program mechanics.
The bonds will be structured with serial and term bonds. Interest on the bonds will be capitalized until six months after the expected occupancy dates.
“There are strong statutory provisions for payment of debt service, including the requirement that rental payments be allocated from the first lawfully available funds of the relevant department,” according to a report from Moody’s Investors Service. “There is also a provision for a continuing appropriation for rental payments should the department fail to provide rental payments in its budget, or operate without a budget.”
The agency has assigned the new bonds an A2 rating and stable outlook, citing strong legal mechanisms for lease payments in spite of some abatement risk. The rating is also linked to the state’s general obligation debt and the credit standing of California, rated A1 with a stable outlook.
Standard & Poor’s rates the bonds a notch lower at A-minus, with a stable outlook.
Stradling Yocca Carlson & Rauth is bond counsel on the deal and KNN Public Finance is the financial advisor.