LOS ANGELES — Riverside County, Calif.’s financial advisor doesn’t expect the county’s recent one-notch downgrade from Moody’s Investors Service to affect its ability to sell $35.5 million in lease revenue bonds Feb. 16. The deal is primarily a refunding, with $3 million of new money to purchase two buildings in Indio to house social service programs.
“We think it will have a minor impact on the rates we receive,” said Daniel Wiles, a principal with Irvine-based Fieldman, Rolapp and Associates, the county’s financial advisor. “We are expecting the issue overall will have a sub-4% yield based on reconnaissance from the underwriter.”
The underwriting syndicate is De La Rosa & Co. and Bank of America Merrill Lynch.
On Feb. 6, Moody’s downgraded the county’s issuer rating to Aa3 from Aa2. It also dropped its pension obligation bonds to A1 from Aa3, lowered its general fund lease obligations to A2 from A1, assigned an A2 rating to the upcoming sale, and shifted its outlook to stable from negative.
The actions affect about $1 billion in debt.
Expectations are buoyed by a market experiencing relatively light supply, heightened demand, and a fairly sparse bond calendar over the next few weeks, according to Wiles.
“At this point, we feel like we are going into the market at the right time,” he said. “Rates have come down; we are near historic lows. Frankly, we are hoping nothing changes in the next 10 days.”
Savings between 6% and 7%, or in excess of $4.25 million net present value, are anticipated on the refunding, Wiles said. The average coupon was slightly less than 5.2% when the bonds were issued in 2001.
Moody’s justified the Aa3 issuer rating by citing Riverside’s long-term economic advantages such as a large tax base, low-cost real estate, and sizable warehousing and distribution facilities.
“The county has been dealing with the economic downturn and the impacts that has had on its revenues for the last four fiscal years. This is Moody’s reaction to the situation,” Wiles said. “Basically, we are disappointed, but Standard & Poor’s rated the same issue AA-minus with a stable outlook.”
Fitch Ratings downgraded Riverside County on Sept. 28. Its GO bond rating fell to AA-minus from AA, the pension obligation bonds fell to A-plus from AA, and the certificates of participation fell to A-plus from AA-minus. Fitch revised its outlook to stable from negative.
