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DLR Banking,
Sales Departments Complete ARRA Tenders for
Port of L.A., S.F. Airport
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| In 2009, the U.S. Congress passed
the American Recovery and Reinvestment Act. ARRA allows ports and airports to
refinance old bonds subject to the Alternative Minimum Tax by selling new bonds
not subject to the AMT. By exchanging high-cost “AMT bonds” for lower-cost
debt, ports and airports could significantly reduce their principal and
interest payments to bondholders. These were not simple transactions. Firms
like DLR, with expertise in pricing and
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California municipal bonds, have an edge negotiating with existing bond-owners
over a mutually beneficial price.
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Edward J.
De La Rosa
President
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In 2009, the Port of Los Angeles
discussed ARRA with De La Rosa & Co.’s Raul Amezcua and Ben Stern. Port
officials recognized De La Rosa’s unique abilities and hired the firm to buy
back its outstanding AMT bonds. The Port and its financial advisor had worked
with DLR on a number of challenging financings and were comfortable with De La
Rosa’s leadership.
First, the DLR sales and trading staff identified investors who owned the
Port’s AMT bonds, then calculated the lowest price at which they would sell
them back to the Port. Meanwhile, the firm’s investment bankers configured a
new bond financing that produced enough money for the Port to buy back its old,
AMT bonds. The savings were the result of the difference between the cost to
buy the old AMT bonds back, and the cost of the new bonds
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purchase. De La Rosa’s bankers and sales and trading professionals performed
seamlessly to save the Port about $8 million.
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De La Rosa
banker John Kim had worked with the San Francisco Airport for a number of years
and he, too, realized the savings possible as a result of ARRA. Once the Port
of Los Angeles financing was completed, Kim notified the S.F. Airport of the
success, and subsequently explained how the financing was developed and
executed. Airport officials saw the advantage of this approach, and selected De
La Rosa in October to lead its own $290-million tender.
Associates Mike Meyer and Aileen Gonzalez worked with Amezcua, Stern, Kim
and Holly Vocal to execute market-driven transactions that met the needs of
issuers and investors alike.
Both financings underlined the value of De La Rosa & Co.’s unified mission.
From the firm’s earliest days, the investment banking and sales and trading
departments have operated as one fully integrated business. In most Wall Street
firms, each operates as a separate profit center. The DLR model ensures that
both sides of the house work together to develop ideas and products that help
the firm’s municipal clients and investors.
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2010 Forecast: Muni
Yields to Rise, BAB Issues to Double
Municipal yields are likely to rise
in tandem with the rest of the fixed-income market in 2010. Strong investor
demand for safe, tax-exempt income and a scarce supply of Municipal bonds have
driven down market yields. We expect this to correct as new supply is issued.
The “January Effect” is common in the Municipal market. What isn’t common,
however, is the forecast for Build America Bonds to nearly double this year.
We’ll see what effect issuing $100 billion in BABs will have on Municipals. The
Muni yield curve is sure to steepen with the Treasury market yields.
The big question this year: Will Congress allow BABs to be used to refund
outstanding tax-exempt bonds? If so, it could create a surge of primary
issuance to unprecedented heights. This would have a direct relationship on
tax-exempts, and tax-exempt yields would drop.
(complete version)
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