The Series C Bonds benefit from momentum in municipal bond market with investor cash flow exceeding supply of new bond issuance

Transaction Summary

Siebert Cisneros Shank served as the senior manager on Alameda City Unified School District’s General Obligation Bonds, Series C, which priced on Wednesday, August 14, 2019. This was SCS’s first senior-managed transaction for the District and the last issuance under the Election of 2014 bond authorization.

With a market rally continuing from the previous Friday, the Series C Bonds rode the momentum in the municipal bond market where investor cash flow exceeded the supply of new bond issuance.

To help minimize the excess original issue premium, SCS offered the Series C Bonds with 2%, 3%, and 4% coupon bonds. Additionally, the Series C Bonds were also offered with an 8-year par call with no pricing penalty on the yield-to-call compared to a bond with a traditional 10-year par call.

The Series C Bonds generated an extremely low borrowing cost for a financing with a 23-year final maturity.

Investor Marketing

SCS’s sales desk was able to efficiently market the Series C Bonds to this universe of investors who had significant amounts of un-invested cash and demonstrated interest in Bay Area unlimited ad valorem GO bond credits.

To aid in the investor marketing, SCS developed an investor presentation that was posted online concurrently with the POS. Additionally, the District remained open to investor questions and was able to answer questions up to the commencement of the order period.

Market Conditions

Following the previous Friday, August 9th, interest rates in the Treasury and municipal bond markets began rallying as a result of the ongoing tariffs and trade war with China. The 30-year AAA MMD’s rate decreased by 4 basis points and the 30-year Treasury bond decreased by 11 basis points going into the day of pricing. This rally was furthered strengthened when the market opened up on the day of pricing with an inversion of the 2-year and 10-year Treasury yields.

Pricing Results

Due to the Treasury yield curve inversion, SCS recommended reducing pricing spreads from the previous day’s premarketing scale by 2 basis points for the 2026 through 2042 maturities.
At the end of the order period, there was $251 million in orders submitted by 33 different institutional investors, 30 of which were potentially new investors.

The Series C Bonds were 4.0x oversubscribed and SCS’s underwriter recommended reducing pricing spreads by 3 to 7 basis points. Due to the District’s strong credit and the market conditions causing a flight to quality, the Series C Bonds true interest cost was 2.50%.