First-time muni issuer pricing $100 million of taxable housing bonds

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Century Housing, a nonprofit public benefit corporation, plans to price up to $100 million in taxable bonds June 25 to provide funding to develop affordable housing in California.

The pricing orchestrated by sole lead manager Wells Fargo Securities represents the first time Century has tapped the muni market with a muni CUSIP, said Peter Cannava, a managing director with Wells Fargo. It did tap the muni market last year using a corporate CUSIP, Cannava said.

"We are very excited to be bringing to market the first muni CUSIP bond for a CDFI," said Peter Cannava, a Wells Fargo Securities managing director.

Century Housing is a community development financial institution that provides financing to develop housing projects in underserved communities. It has invested more than $2 billion to develop more than 45,000 affordable housing units in California, according to the organization.

"We are very excited to be bringing to market the first muni CUSIP bond for a CDFI that has ratings from two rating agencies," Cannava said.

The bonds are being sold through the California Municipal Finance Authority, the state affordable housing agency.

Roughly half of the $100 million will be used to refinance existing loans, some of which were issued at a higher interest rate, said Alan Hoffman, chief financial officer.

“We have a maturity of 2019 bonds that are coming due in November,” Hoffman said. “Part of the muni bonds we are offering now will be used to refinance those, another portion will be applied to our current loan portfolio.”

The finance team made the decision to issue the bonds in the municipal bond market partly because all of the projects Century Housing is financing through the transaction are in California, Cannava said.

“It made it easier to use a conduit then it would have if it involved projects across the country,” Cannava said.

The legal team includes Orrick, Herrington & Sutcliffe as bond counsel, Dentons US as borrower's counsel, Jones Hall as issuer's counsel and Cozen O' Connor as counsel to the underwriter.

Century Housing has obtained a third-party opinion from Sustainalytics US Inc. attesting to the environmental and social benefits that will arise from the housing built with financing from these bonds.

"The affordable housing we finance is green, and most of it is low income tax credit projects," Hoffman said. "All of our projects are also in California, and California has the most demanding building codes in the country, which require quite a bit of green and environmental aspects."

Since the projects are green, "we thought it was important to showcase this aspect by getting a third-party opinion," Hoffman said. "It goes without saying that the projects are "social," because we are providing housing to low and moderate income families. It's also transit-oriented, which will reduce commute times."

Highlighting the ESG aspects of the bonds with the certification is expected to attract investors who target those bonds, Cannava said.

"We haven't seen a green premium, which would mean that a green bond investor is willing to buy them for 5 or 10 basis points lower than the typical muni investor," Cannava said. "It does draw a broader investor base. We do think there will be more value derived eventually from attaining an ESG certification, because more investors are looking to invest in projects that have a social impact and are sustainable."

Fitch Ratings and S&P Global Ratings assigned the bonds AA and AA-minus ratings, respectively. Both assigned stable outlooks.

Century expects to provide early stage financing, including acquisition, bridge, and construction loans for developments, most of which will subsequently be financed with Low-Income Housing Tax Credits, Hoffman said.

Century has been named four times to Affordable Housing Finance magazine’s list of the top 25 affordable housing finance companies.

Correction: The California Municipal Finance Authority is the issuer of the Century Housing bonds. The original version of the story incorrectly named the conduit issuer.

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