Los Angeles officials said they expect a favorable reception from investors for the city's annual tax and revenue anticipation notes sale on June 24.
Proceeds of the $1.39 billion sale will be used to smooth cash flow and make a pension payments before July 15, generating about $36.4 million in savings from a pre-payment discount.
"Our fiscal year 2015-2016 budget demonstrates fiscal discipline and makes key investments to city services," chief administrative officer Miguel Santana said in an interview last week in New York, where LA officials were presenting the deal to investors. "We think this will get good reception. Last year we got 11 basis points [on the MIG1 1-year scale] and we hope to be competitive this year. We are a safe bet and think there will be a lot of interest."
As of June 17, the MIG1 1-year scale was at 29 and, according to the presentation team for the city, TRANs this year have sold between 27-30. "When you sell TRANs, it is a combo of credit and where the market is, so we will see where it is next week on the day that it prices," said Natalie Brill, Los Angeles chief of debt management.
The city's economy has improved since the financial crisis, including a steady recover since 2012, marked by growth in employment and an upward trend in home prices and housing sales and in residential permits and non-residential permit values. LA expects to eliminate its structural deficit by 2019.
"The cash flow part of the sale's proceeds has declined to $350 million from $450 million as the city's economic situation has improved and the city doesn't need as much cash," Santana said. "The pension portion of the proceeds has increased as pension liabilities have grown [to $450M for city employees and $623M for police and fire fighters]."
The funded ratios for the pensions in the retirement systems -including health -- for city workers and police and fire fighters are expected to hit almost 91% by 2019-20.
"The city didn't take the easy route to economic health. It partnered with the private sector and held employment at needed levels. It contained expenses while maintaining a level of service to the public," Santana said. "The city has evolved and it has laid out a plan to fulfill objectives and it has a good track record in meeting its goals. The city is transparent and when it doesn't meet its goals it explain why."
Stifel will be the lead underwriter on the transaction with JP Morgan and Ramirez & Co., Inc., as co-managers and Omnicap Group LLC serving as the financial advisor. The transaction is rated MIG1 by Moody's Investors Service and SP-1 plus by Standard and Poor's - the best ratings for notes possible.
