Washington, D.C., overcame a disheartening downgrade last month as the city executed a successful sale of nearly $1.5 billion in bonds, pouncing a day ahead of the scheduled sale date to take advantage of favorable market conditions.
"Despite Moody's recent
"The bonds were originally scheduled to price on Thursday, May 1," Lee continued. "The District and Wells Fargo chose to accelerate the transaction by one day to take advantage of favorable market conditions. This strategic timing allowed the District to navigate recent market volatility and potential credit headwinds related to the downgrade."
Wells Fargo was the senior managing underwriter on the deal to successfully price $1.17 billion of Income Tax Revenue and Refunding Bonds, Series 2025A tax-exempt, and $301 million of Income Tax Revenue Bonds.
"We appreciate the District's flexibility which allowed us to take advantage of a window when we saw a positive tone in the market and accelerate pricing ahead of the original schedule," said Amanda Amaro, lead underwriter on the transaction for Wells Fargo.
"Despite the Moody's downgrade, we saw significant investor demand having received $6.7 billion in orders and were able to reprice up to 15 basis points in lower yield. At the end of the day, the downgrade had minimal impact on investor participation."
Proceeds from the sale will be used to pay for or reimburse capital project expenditures under the city's capital improvements plan and to refund general obligation Commercial Paper Bond Anticipation Notes series 2022A, along with all or a portion of GO Bonds series 2015A.
The proceeds will also all or partially defease District Income Tax Secured Revenue Refunding Bonds Series 2020D. District Income Tax Secured Bond Anticipation Note series 2024B will be refunded and all the costs for issuing the bonds are covered.
Moody's rated the deal as Aa1 as S&P Global Ratings pegged it at AAA. PFM and Phoenix Capital Partners were the co-municipal advisors.
Ramirez served as the co-lead manager and Orrick as the bond counsel. Co-managers include Bancroft Capital, Raymond James, Barclays, Siebert Williams Shank, J.P. Morgan
and Stern Brothers.
"The transaction was well received by the market—both bond series were more than four times oversubscribed, which enabled spreads to be tightened across the board," said Lee.
"This successful transaction reflects continued confidence in the District's fiscal management and the strength of its credit fundamentals."
According to the OCFO, the tax-exempt series rang up orders from more than 70 unique investors with 18 placing bids for more than $100 million.
According to Bloomberg analysis, the strong demand allows the city "to lower its borrowing costs from where the debt was initially marketed." Securities due in 25 years were issued with a 5% coupon and a 4.58% yield, which was lower than the 4.63% offered to investors in earlier pricing.
S&P has not downgraded the city. In addition to rating both tranches of the issuance at AAA stable, the agency also affirmed Washington's long term rating at the same level.
According to S&P, "The rating on D.C.'s income tax-backed debt reflects very strong historical and projected current and maximum annual debt service coverage. We expect MADS coverage to remain nearly 8x based on outstanding income tax debt and the current series 2025 issuance."
"Management projects continued incremental growth in total pledged revenue, with average projected growth of 2.4% in fiscal years 2025 through 2037. This forecast reflects slower growth than the nearly 9% average from 2015-2024.
"Further supporting the rating is the District's general creditworthiness, including a deep and diverse economy, and management's ability to maintain a stable financial profile, supported by its sophisticated, forward-looking financial planning policies and practices."
Moody's attributed its downgrade prior to the sale to "the increased likelihood of further federal spending and workforce cuts and the District's declining commercial real estate market as well as the high degree of uncertainty regarding federal government policy changes, notably reductions to the federal share of Medicaid funding."
The city has several other billion-dollar balls in the air as it attempts to navigate the financial uncertainties unleashed by the Trump administration.
The continuing resolution passed by Congress in March omitted language that allows the city to operate under its approved 2025 budget. Instead, Congress is forcing the city to use its 2024 budget numbers resulting in a $1.1 billion shortage which has delayed the 2026
The Senate has since passed a bill reversing the House's directive which has support from President Trump. The House has failed to take the matter up since returning from recess, forcing the city into preparations for spending cuts.
Last Friday, the White House confirmed plans to host a military parade on June 14 honoring the President's birthday and the U.S. Army's 250th birthday.
During Trump's first administration the president tangled with Mayor Muriel Bowser about an estimated $21.6 million in costs the city would incur for a military parade that was eventually scuttled.
Last week the city also pressed forward with a plan to bring an NFL stadium back to the city by striking a $3.7 billion deal with the Washington Commanders that would transform the RFK stadium site into a 180-acre mixed-use development. The public private partnership could require a $1.1 billion investment from taxpayers.
