Los Angeles County Public Works Financing Authority
Lease Revenue Bonds, 2021 Series F (Green Bonds)
October 14, 2021
This was the first time that a minority/women-owned business senior managed a County transaction
The Bonds were issued in conjunction with a $225 million Series 2022G bond transaction (a 7.5 month forward refunding) that was led by another firm but that SWS also served as joint senior manager on.
The Bonds were issued to refund outstanding commercial paper and to provide additional project funds to be used to complete the Martin Luther King, Jr. (“MLK”) Behavioral Health Center, three recuperative care centers, a fire station, and the retrofitting of a MLK hospital services building/Central Plant 1. After highlighting the County’s fiscal prudence leading to historic levels of reserve fund balances, the County’s leadership in its response to COVID-19, and the resiliency of local property tax revenues, the Bonds were rated Aa2/AA+/AA and received an upgraded outlook from S&P, from negative to stable.
Since all the financed building projects have either a Gold or Silver LEED certification (except for the Central Plant 1, which only constitutes 1% of the total project costs), the bonds were self-designated as green bonds. SWS’s underwriter proposed premarketing with 5% coupons for the 2022 – 2036 serial bonds, 4% coupons for the 2037 – 2041 serial bonds, 4% coupon for the 2046 term bond, and 2.625% for the 2051 term bond; however, the County and its municipal advisor requested that the serial bonds from 2037 – 2041 be premarketed with 5% coupons instead of 4%, which SWS agreed to.
Since the 2021F and 2022G series were pricing on the same day, it was imperative for SWS to price the 2021F Bonds as tight as possible to minimize the credit spread over AAA MMD to offset the recent increase in monthly forward premiums as a result of the Fed signaling it would taper asset purchases. At the start of pricing day, SWS’s underwriter received additional feedback from investors who were only interested in 4% coupons from 2039 – 2041; the County and its municipal advisor then agreed to follow SWS’s strategy of switching those three maturities back to 4% coupons from the 5% coupons premarketed the day before.
At the end of the order period, there were $820.38 million (3.2x oversubscribed) in priority orders submitted by 57 different investors. Every maturity was fully subscribed for on a priority basis except for the 2038 serial bond with a 5% coupon which was 58% subscribed for, leaving an unsold balance of $4.99 million, which SWS offered to underwrite while leaving the pricing spread unchanged.
The oversubscriptions allowed SWS to decrease pricing spreads on 18 out of the 22 maturities offered by 2 to 10 bps each. The All-In TIC for this 30-year level debt service structure was a low 2.60%. Additionally, the County commended SWS in its strategy to switch the coupons of the serial bond maturities in 2039 – 2041 from 5% to 4% on the morning of pricing, this change led to interest from 6 to 8 investors in each maturity.