The City of Hartford, Connecticut
Special Obligation Refunding Bonds (State Contract Assistance), Series 2023
April 26, 2023
BOOKRUNNING SENIOR MANAGER
Purpose.The Bonds were issued to refund all or a portion of the aggregate principal amount outstanding of select general obligation bonds of the City.
Structure. The Bonds currently refunded six series of the City’s outstanding general obligation bonds, but were structured to achieve level annual savings on an aggregate basis with a final maturity of April 1, 2033. Annual cash flow savings were approximately $1.39 million.
Market Conditions. Volatility persisted in both the municipal and Treasury markets in the week leading up to pricing, with the market experiencing corrections across the yield curve as the current ratios did not seem sustainable. Leading up to pricing, MMD saw sizable cuts, particularly on the short-end of the curve where the City’s Bonds would amortize. The calendar for the week of April 24th was expected to be sizable at $9.9 billion, which presented a potential challenge given the continued bond fund outflows.
Marketing and Credit Strategy. SWS led a comprehensive marketing campaign which included summarizing the complexity of the credit and drafting clarifying language to include in the POS and Pricing wires. The Bonds are secured by contract assistance payments that are general obligations of the State of Connecticut, and the sales force communicated with prospective investors to distinguish the Bond’s credit ratings from the City’s underlying ratings.
Pricing Strategy and Results. Given the unpredictability of the market, SWS recommended to wait on setting the levels for the preliminary pricing period in order to get a sense for the market tone in the morning. SWS recommended entering the market early, ahead of the large calendar scheduled to price on the same day. The transaction generated $45.3 million in retail orders and $314.4 million in Institutional orders, which includes $143.4 million of orders from SMAs across all maturities. Orders were received from 28 different institutional and professional retail investors, 12 of which did not currently report holding the City or State of Connecticut GO bonds. The Bonds were oversubscribed from 1.2x to 6.9x on every maturity, with the exception of the 2030 maturity. SWS elected to underwrite the remaining balance of $2.9 million in 2030 instead of widening spreads. The Treasury market was choppy on the day of pricing, but relative stability in the muni market allowed SWS to tighten spreads by 8 bps in 2024, 3 to 4 bps in 2025-2028, and 2 to 3 bps in 2031-2033 for Repricing. The tightening of spreads allowed all of the original refunding candidates to remain in-the-money, despite recent cuts in MMD. The refunding generated NPV savings of $12.3 million (8.96% of refunded par).