The San Francisco Airport Commission refunds $110 million in fixed-rate revenue bonds with new variable-rate bonds to lower its overall interest cost.  •  The San Dieguito Union High School District responds to the turbulent auction-rate market by converting $90 million in ARS bonds to fixed-rate securities.  •  De La Rosa & Co. generates $41 million of retail orders to reduce yields and save the L.A. County Metropolitan Transportation Authority significant interest costs on a $25-million Sales Tax Revenue Bond issue.  •  The L.A. Community Redevelopment Agency obtains a strong investment-grade rating on a $12.5-million Taxable Tax-Allocation Bond issue for the Westlake Recovery Project.  •  Despite a tough market, Beverly Hills successfully refunds $31 million in water revenue bonds and $17 million in wastewater revenue bonds for economic savings.  •  The Gridley Redevelopment Agency clears various hurdles caused by tightening credit in the municipal market to successfully execute its first tax-allocation bond financing.  •  Riverside issues unenhanced Bond Anticipation Notes to mute the effects of the collapse of auction-rate securities and prudently control interest costs.  •  The Sacramento Regional County Sanitation District restructures $50 million in auction rate securities with better performing, direct pay variable-rate bonds backed by letters of credit.  • 
DLR Banking, Sales Departments Complete ARRA Tenders for
Port of L.A., S.F. Airport
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  
selling California municipal bonds, have an edge negotiating with existing bond-owners over a mutually beneficial price.

Edward J.
De La Rosa
President 		  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
used to pay for the purchase. De La Rosa’s bankers and sales and trading professionals performed seamlessly to save the Port about $8 million.
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.

Fresh Bond Supply Stirs Investor Interest

California Municipal bonds are seeing a fair amount of customer inquiry in the market’s front end, although interest in the long ends of the taxable and tax-exempt markets is weak. Why? Supply has reappeared in the primary and secondary markets. Large mutual funds continue to lose cash, forcing them to sell off positions on the bid side. Meanwhile, a $1.25-billion General Obligation issue for the L.A. Unified School District and a $1.5-billion Illinois G.O. topped last week’s primary calendar. Both deals had Build America Bonds and tax-exempts.

Taxable Build America Bonds will be nearly 20% of $4.1 billion in primary issuance (about $845 million) this week. The remaining $3.25 billion will include more than $1 billion of healthcare bonds. That amount would usually be easy to absorb but continuing outflows of cash from funds and heavy dealer inventories have made placing bonds a monumental task. Government bonds posted large losses across the curve last week, making it even more difficult.

The Federal Reserve’s move to raise the discount rate 50 basis points to nudge banks back into the private sector and not depend on government caused a sharp sell-off of stocks and bonds. The Treasury also announced it will sell $126 billion Treasury Bonds this week, including $44 billion in 2-years, $42 billion in 5-years, $32 billion in 7-years, and $8 billion in TIPs. These factors are making the market cheaper and might create a nice buying opportunity. Please contact us for a full run of Municipal offerings.

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