SAN FRANCISCO - With its credit ratings restored, San Diego plans to jump back into the market with as much as $1.4 billion of bonds in the next year.
The city was locked out of the public bond market for four years in the wake of a 2004 pension scandal.
The scandal left the city unable to issue audited financial statements, which led Standard & Poor's to withdraw its credit rating.
San Diego has replaced its financial management and completed financial reports that acknowledge previously hidden unfunded pension liabilities of $1.2 billion.
Standard & Poor's reinstated the city's credit rating last week, assigning an A with a positive outlook.
"We're thrilled," said chief operating officer Jay Goldstone. "We now have access back out to the public market."
California's second-biggest city needs access to the market because it has a backlog of capital spending projects and refunding opportunities that were put on hold while it was blocked. It was able to issue some debt through private placements that carried relatively high interest rates. San Diego plans to refinance those bonds as soon as possible.
Goldstone, the city' top administrator, said he hopes to return to market with a pension bond sale of about $50 million within weeks. The deal will fund the final installment of a $173 million settlement with retiree William McGuigan, who sued the city for underfunding its pensions. The proceeds would be deposited into the pension fund.
"We're looking to do this first and do it quickly," Goldstone said. The city is hurrying because its labor contracts allow it to leverage employee pension contributions if it pays off the McGuigan settlement by June 30.
But there's a wrinkle. Officials plan to structure the deal as lease-backed debt with an asset transfer. City attorney Michael Aguirre is blocking another $103 million deal with the same structure because he believes San Diego can only issue lease-backed debt for projects that are related to the leased property.
While Goldstone, Mayor Jerry Sanders, the City Council, and the city's bond counsel disagree, they may not be able to find a way around Aguirre's objections before the June 30 deadline.
Most of the deals the city plans to bring to market in the next year are less complicated.
Goldstone said San Diego plans to sell as much as $200 million of new-money wastewater revenue debt by the end of 2008 to fund capital spending. It also plans to refund about $224 million of outstanding private placements and as much as $450 million of older sewer system bonds to save on interest costs.
San Diego plans to bring to market as much as $200 million of new-money water revenue bonds. At the same time, it will refund $227 million in private placements and $550 million of regular water debt.
The city also plans to continue to push its case for rating upgrades. It was among the nation's most highly-rated big cities before the pension scandal, which led former Mayor Dick Murphy to resign and cost several top managers their jobs. Officials have just competed meetings at Moody's Investors Service and plan to meet with Fitch Ratings analysts in early June, Goldstone said.
Fitchin March revised its rating watch on San Diego's BBB-plus GO rating to positive from negative. The rating was AAA before the pension scandal. Moody's rated San Diego Aa1 before the scandal and currently rates the city A3.