LOS ANGELES — A Los Angeles County joint powers authority achieved $33.6 million in gross savings on its inaugural $145 million refunding.
The JPA was created in June to help redevelopment successor agencies in the county to refund bonds for interest-rate savings.
County officials created the program after they discovered $1 billion of the $3.5 billion in outstanding tax allocation bonds issued by 71 former redevelopment agencies in the county were callable in 2013 and could achieve $90 million in present value debt service payment savings.
Many of the bonds are priced above current market interest rates, said Douglas Baron, director of finance and investments for Los Angeles County. With interest rates inching up, he said, the county has been working diligently on pooling the bonds of interested successor agencies for refunding.
When the county created the program in June, few refundings had been conducted by the successor agencies to the state's 400-plus redevelopment agencies since they were dissolved in early 2012.
"I think investors are in the process of getting comfortable with refunding credits for the successor agencies," said Doug Baron, director of finance and investments for Los Angeles County. "There was just no activity the first year after dissolution. In the first half of 2013, the market saw a half dozen refundings."
The state ended redevelopment in large part because of the perception that city governments used it to grab too large a share of the property tax pie shrinking funds available to K-12 schools and community colleges.
The agencies captured incremental property tax growth in redevelopment zones that resulted from new development. The state dissolved the agencies with the intention of redirecting that property tax revenue back to local governments and school districts, although the agencies' outstanding debts will be repaid.
Firms are now starting to research the credits and the buyers are coming back, Baron said.
The county saw orders from investors that ranged from large institutional investors to professional retail handling separately managed accounts, he said.
The 2013 refunding bonds are not only the first to be issued through a countywide program, Baron said, but are also the first to use a pooled structure that combined individual successor agencies into a single series of refunding bonds. In the largest of the pooled series, the county program successfully combined six successor agencies and seven different project areas into one refunding with an aggregate par amount of close to $80 million.
De La Rosa & Co. and Citi are co-underwriters for the program. Other members of the financial team are KNN Public Finance as financial advisor and Orrick, Herrington & Sutcliffe LLP as bond and disclosure counsel.
The final structure was highly complex and included two taxable bond series and four series of tax-exempt bonds issued on behalf of seven different successor agencies and 13 separate redevelopment project areas, Baron said.
"One of the big successes of this program is we closed it in 2013," Baron said. "There were a lot of participants and moving parts, but we had a deadline and we stuck to it."
The authority also achieved nearly $10 million in gross debt service savings than originally anticipated on the 13 series of bonds it refunded for seven successor agencies. The agencies participating in the refunding are from Alhambra, Claremont, Covina, Los Angeles, Lynwood, Monterey Park and West Hollywood.
The deal required much more marketing than usual for Los Angeles County bonds.
"I think the underwriters were required to reach out to a broader investor base," Baron said. "In this case, it is not just a matter of understanding the credit, it is understanding the dissolution (of redevelopment)."
The refunding bonds issued through the county program received ratings from Standard & Poor's that ranged from BBB to AA-minus.
The $87 million A-minus rated Series D bonds achieved an average yield just under 3.6% with an average maturity of 6.5 years, Baron said. The savings relative to the par amount of the refunded bonds was 6.4% on the D series.
He considered it the benchmark, because most other refunding credits have sold in the A-minus range.
The county didn't insure the first seven maturities in the series, but added bond insurance for maturities of 2021 and beyond.
The variety of bonds added to the complexity and resulted in the bonds being issued in series of A through F. The A through C series closed on Dec. 19 and the D through F closed on Dec. 23.
"I think the level of complexity is greater than what we anticipated," Baron said. "The amount of due diligence was beyond what the county originally anticipated."
But with that said, "we never veered from the schedule and closed in December," Baron said, adding that he feels they are in good shape to repeat the process going forward.
The county plans to conduct two more pooled refundings of redevelopment bonds, one in June or July and another in early December.
