With SEC probe well behind it, West Contra Costa USD sells GO debt

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The West Contra Costa Unified School District sold $206 million of general obligation bonds less than a year after the U.S. Securities and Exchange Commission ended an investigation into its finances.

The Richmond, California-based district, 15 miles northeast of San Francisco, held two competitive bond sales April 24: one for $60 million and the other for $65 million.

Bank of America Merrill Lynch won both auctions, with a true interest cost of 3.6784% on both.

Nixon Peabody LLP is the bond and disclosure counsel. KNN Public Finance LLC is the financial advisor.

On April 26, the district also sold $81 million in taxable refunding bonds in a negotiated deal led by JPMorgan. Yields ranged from 2.342% for a February 2019 maturity to 4.328% for a 2041 maturity. The taxable bonds come with a 10-year par call.

Last July, the SEC ended a three-year probe into the school district looking into allegations of mismanagement of the $1.6 billion bond program. In a letter to the district, the agency stated it would not recommend any enforcement action while adding that it should not be considered an exoneration.

In its newest offering statement, as it did when it previously sold bonds in August 2017, the school district mentions the SEC investigation in a three-paragraph section, quoting from the SEC letter that informed the district that the investigation was concluded.

The statement also recounts a $1 million forensic audit done by the school district, stating that the district “is in the process of implementing the majority of the recommendations.”

The bonds were assigned ratings of Aa3 from Moody’s Investment Services, AA-minus from S&P Global Ratings and AAA from Fitch.

“The over-riding strength of this district is the large and growing tax base,” said Austin Harris, lead analyst with Moody’s, citing the San Francisco Bay Area’s increasing property values.

He said the district also has a healthy reserve and good financial management in place. The only downside is that it is carrying a substantial level of debt, Harris said.

As for the SEC probe “for credit quality, the matter is closed,” he said.

The district is still dealing with an ongoing investigation by the California Fair Political Practices Commission.

The state political ethics watchdog agency is looking into allegations involving a political action committee that include current and former school board members. Local media reported that some vendors who did business with the district felt pressured to contribute to the committee which campaigned on behalf of the district’s bond program.

The FPPC has an open investigation into school board member Madeline Kronenberg and former school board member Charles Ramsay, agency spokesman Jay Wieranga confirmed in an email.

In November 2016, the agency fined the For the Children of West County political action committee $25,000 as part of a stipulation in which the group admitted to violating the state Political Reform Act. The group failed to file timely campaign reports, change its name to reflect the interests of a major donor and report sub-vendor payments.

In its offering statement, the school district stated that it does not believe the subpoena or the investigation will “pertain to or have an adverse effect on the collection of ad valorem taxes levied by the County to pay principal and interest on the Bonds or the District’s payment of principal of and interest on the Bonds as they become due."

Following the SEC decision last year, district Superintendent Matthew Duffy said in a statement that the district had “made significant changes to improve” the bond program. He said hoped “we are beginning to regain the trust of the community in our ability to responsibly and effectively manage the school construction and bond program.”

The $65 million offering is part of a $380 million general obligation bond measure the district's voters approved in 2010, of which $130 million had remained unissued.

The $60 million offering was part of a 2012 measure for $360 million of which $125 million was unissued. Both measures were for capital projects to improve school district facilities.

The district anticipates issuing the remaining $130 million in bonds in the summer of 2020.

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