Oakland Joint Powers Financing Authority (CA)
Lease Revenue Refunding Bonds (Oakland Administration Building) Series 2018
May 8, 2018
On May 8, 2018, SCS served as Senior Manager for the Oakland Joint Powers Financing Authority’s Lease Revenue Refunding Bonds, Series 2018, the proceeds of which were used to refund all of the Authority’s Series 2008B Lease Revenue Bonds.
After an in-depth analysis comparing the potential pricing impact of several reserve fund options, including multiple varieties of cash funding levels and engaging two surety providers, SCS recommended issuing without a reserve fund for the first time in the history of the City’s Lease Revenue Bond credit.
Additionally, with the City’s booming economy, rapidly increasing assessed valuation, record high market value of residential and commercial real estate, proximity to the broader tech economy of the Bay Area, and growing general fund balance, the City was able to defend its Aa3/AA- ratings and did not price with bond insurance.
A Fair Rental Value evaluation of both the Danziel Building and the Wilson Building was completed, showing that the annual fair rental value of the Danziel Building was at least 100% of the maximum amount of Base Rental Payments due under the Sublease, thereby enabling the City to release the Wilson Building as collateral for the Sublease.
SCS worked with the City and its Municipal Advisor to structure a portion of the savings, totaling $1.25 million, to be captured up front, with uniform savings in the balance of the structure.
In the week leading up to pricing, MMD decreased in the first 8 years by an average of 7 basis points on the back of a flight to quality after President Trump decided to withdraw from the nuclear accord with Iran. Against this market backdrop and in anticipation of strong professional retail demand, SCS recommended entering the market with 5% coupons and spreads of 0 to 8 bps to AAA MMD for the Bonds, which matured in the front end of the yield curve (2018 to 2026). The 2018 maturity was offered as a sealed bid.
As a result of the strong pre-marketing effort, the bonds were 4.9x oversubscribed, with some maturities receiving up to 7.0x orders. SCS recommended re-pricing to final spreads of between -4 to 2 bps, making the 2018 Bonds that City’s lowest priced Lease Revenue Refunding Bond issuance ever.
NPV Savings totaled $6.9 million, or 10.5% of refunded par. The bonds priced with an All-in TIC of 2.36% and an average life of 4.79 years.