LOS ANGELES — The San Bernardino redevelopment successor agency's plan to refund roughly $68 million in tax increment bonds should find an eager market given the tight spreads for California credits, according to one investment advisor.
"I think the spreads will be wider than other California names, but there will be enough depth in the market to absorb it," said Michael Johnson, a managing partner and head of research at Gurtin Fixed Income Management, LLC.
The successor agency's finances are separate from the bankrupt city's, said Steve Dukett, a managing principal with Urban Futures Inc. The firm is financial advisor on the bond sale. Dukett is also chief consultant for the former redevelopment agency's wind down.
San Bernardino declared Chapter 9 bankruptcy in 2012 and is still wending its way through the process.
The refunding will take out two bullet notes, one for $8 million due in Sept. 2016 and another for $7 million in Sept. 2017, which will smooth out cash flow for the successor agency, Dukett said.
The $6 million in interest rate savings from the bonds would be split between the municipalities, school districts and special districts in the county. So the city's split would provide a needed infusion of cash, Dukett said.
The bonds are expected to price at the end of the month and close in December.
Stifel Nicolaus & Co. is the underwriter. Rounding out the finance team are Stradling Yocca & Rauth as disclosure counsel and Orrick, Herrington & Sutcliffe as bond counsel.
California passed a law in 2011 that launched a process to dissolve its 400-plus redevelopment agencies.
Urban Futures has done refundings for successor agencies on a regular basis over the past few years, Dukett said. The financings have to achieve savings and the maturities can't be extended under the dissolution guidelines, he said. The successor agency's debt all matures in 2016, after which the tax increment will be eliminated and all the revenue currently collected to service bond debt will return to the general tax levy.
Urban Futures expects to get an investment grade rating for the bonds and is working on also getting bond insurance.
The bonds should ride the current demand for California bonds, Johnson said.
"Given the size, they will probably have to price aggressively," said Johnson, but the wider spreads also will draw interest, because the spreads are so tight on California bonds right now.
