LOS ANGELES — A Los Angeles County joint powers authority plans to head to market the week of Dec. 9 to refund up to $200 million in redevelopment agency tax allocation revenue bonds as a conduit issuer for seven successor agencies located in the county.
The refunding will represent the inaugural bond sale for the JPA formed in June to help redevelopment successor agencies in the county to refund bonds for interest-rate savings. County supervisors approved the bond sale at their Nov. 15 meeting.
De La Rosa & Co. and Citi are co-underwriters. KNN Public Finance is financial advisor. Orrick, Herrington & Sutcliffe LLP is bond and disclosure counsel.
Since California’s more than 400 redevelopment agencies were dissolved in early 2012, only a handful of refundings have been conducted.
The agencies captured incremental property tax growth in redevelopment zones. The state dissolved the agencies with the intention of redirecting that property tax revenue back local governments and school districts, though the agencies’ outstanding debts will be repaid.
State law gives redevelopment successor agencies the ability to refund bonds for the purpose of debt service savings.
Los Angeles County’s 71 former redevelopment agencies have more than 300 series of tax allocation bonds outstanding with par value of more than $3.5 billion, according to the county. Of that figure, approximately $1 billion are callable in 2013 and could achieve $90 million in present value debt service payment savings.
The initial deal will refund a par amount of $153 million for $24.2 million in gross debt service savings for 13 series of bonds being refunded for seven successor agencies. The agencies participating in the refunding are Alhambra, Claremont, Covina, Community Redevelopment Agency of Los Angeles, Lynwood, Monterey Park, and West Hollywood.
The refundings will probably be divided into five pools, because some are tax exempt, some aren’t, and some will carry bond insurance while others will not, said Doug Baron, director of finance and investments for Los Angeles County.
The cities that sponsored the original redevelopment agencies are expected to receive anywhere between 10% and 25% of the additional property tax revenues generated by interest savings. Los Angeles County itself can expect to receive approximately 25% of gross debt service savings, or up to $6 million in additional property tax revenue over the life of the bonds. Its flood control district, consolidated fire protection district and county library district also will benefit.
Another 33 of the county’s 71 successor agencies have discussed refundings to be conducted either through the JPA or individually, according to a report from County Treasurer Mark Saladino. The county plans to do two additional pooled refundings in 2014 through the JPA, which was conceived as a multi-year program.
The JPA was created because the county recognizes 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 expertise, Baron said.
In most cases city governments are serving as the successor agencies that administer outstanding redevelopment bonds. But cities may not be highly motivated to conduct a refunding because they won’t see much of the benefit because money freed up through refinancing must be shared with other jurisdictions.
The county created the JPA, but the successor agencies are still the bond issuers. Their bonds will be bought by the county JPA, which will sell the revenue bonds to the capital markets.
Based on other deals that have come so far, the bonds will be well-received assuming the bond issuance is structured properly, said Dennis Tripp, of Los Angeles-based Harvey Capital Corp.
The handful of redevelopment bonds that have been refunded have carried bond insurance through BAM or Assured Guaranty boosting the ratings, Tripp said. The yields have been favorable to the issuer, he said.
A $44.9 million refunding priced by Glendale’s successor agency on Nov. 6 achieved an AA-minus rating from Standard & Poor’s based on Assured Guaranty bond insurance. Glendale achieved an underlying A rating.
Tripp said the county will do well assumes it achieves an A rating on the pooled refundings.
The county sought a rating from S&P and hopes to hear back by Thanksgiving, Baron said.
The yields on the Glendale refunding ranged from 0.56% on to 2.96% on maturities ranging from 2014 to 2021, according to the offering statement. The interest rates ranged from 2% to 5% across the maturities.
Glendale was well oversubscribed and did well, Tripp said.
At the other end of the spectrum, the RDA bonds that experienced a severe drop in valuation and have received junk bond ratings are trading at 20 cents to 50 cents on the dollar, Tripp said.
Since the dissolution, there is a different set of buyers for those bonds, he said.