Calaveras County: DLR has closed on two land-secured refundings for Saddle Creek, a golf community in the Sierra Nevadas. The Sales and Trading Desk found buyers who understood the developer’s long-term strategy.  •  Palmdale: DLR was sole Senior Manager on federally taxable Certificates of Participation so the city could acquire 600 acres for a 550-megawatt power plant to attract and retain businesses.  •  Chowchilla: DLR senior-managed a special bond for critical infrastructure improvement until development impact fees can be raised to support $93 million in residential, commercial and industrial projects.  •  Pittsburg: DLR was Senior Manager on a tax-allocation bond that raised almost $100 million for housing and other projects, and saved the city’s Redevelopment Agency another $3.5 million by refinancing earlier bonds.  •  Chula Vista: DLR senior-managed a tax-allocation bond after Chula Vista demonstrated that the future assessed value of the city’s Bayfront-Town Centre offsets a highly concentrated tax base.  •  Los Angeles: As book-running Senior Manager, DLR structured a $34.5-million pooled financing for the city’s Community Redevelopment Agency without a yield spread to adhere to the CRA policy to complete separation between project areas.  •  DLR senior-managed refunding of all outstanding debt at Ontario Airport, increasing the L.A. Department of Airports’ flexibility to define net revenues and its debt-service reserve fund – and reaffirm its “A” rating.  •  Long Beach: The city recently issued more than $190 million in redevelopment project financing, including $115 million of taxable bonds, in a Marks-Roos pooled issue to fund projects in five areas.  •  From naval base to housing space: Few could envision a new community when the Alameda Point Naval Air Station was decommissioned a decade ago. Today, a highly successful development with 300 homes occupies part of the old base.  •  Riverside County: DLR senior-managed a $25-million Mello-Roos financing to improve street, water, sewer, and other public facilities at Lake Hills Crest, a development with 512 single-family detached units.
 

Lightening the Debt Load at Ontario Airport

De La Rosa & Co. served as Senior Manager on a 2006 refunding of all outstanding debt at Ontario Airport by the City of Los Angeles’ Department of Airports. De La Rosa spearheaded the effort to increase the airport’s flexibility to define net revenues, its debt-service reserve fund, and swap language. DLR also helped reaffirm its “A” rating and obtain aggressive bids from the major bond insurers.

(complete version)
   

President's Message
Finding Diamonds Close to Home
During Turbulent Economic Times


In the early 20th Century, the founder and first president of Philadelphia’s Temple University became famous for a speech he delivered all over our growing country. In “Acres of Diamonds,” Russell Conwell advised young Americans to follow the examples of local merchants and business owners and seek opportunities for success in their own backyards.

(complete version)



BEN STERN'S MarketWatch

Treasury, Muni Markets Remain Quiet

Treasuries ended relatively flat after weeks of volatility. Market concerns remain focused on inflation, but bearish reports about investor confidence, housing and jobs are keeping interest rates down. On June 6, yields on the 2-year note closed at 2.37%. The 10-year note lingered around 4%, then closed at 3.91% after news of the steepest rise in unemployment in more than 20 years, with the economy losing jobs for the fifth straight month. Meanwhile, the 30-year bond closed at 4.62%. Fed Futures indicate a 62% chance the central bank will increase its benchmark rate by yearend.

Tax-exempt rates continue to move along with Treasuries in a fairly quiet market. Primary new issuance continues to be manageable and well received, and absolute yields remain relatively attractive. Although liquidity in the market has improved significantly, secondary municipal trading shows the market still lacks full efficiency. Investors continue to discredit most insurers and focus on underlying credits. Standard & Poor’s downgraded AMBAC and MBIA two notches to AA last week. We expect the market for high-grade Munis to continue consolidating as crossover buyers and retail continue to create sufficient demand for municipal paper, though a possible surge in supply from investors selling paper insured by AMBAC and MBIA could temporarily raise ratios.

Yields on high-grade, short-term, tax-exempt continue to drop as cash flows into money funds. The variable rate market appears to be consolidating as issuers continue to address solutions to their auction rate debt.

(complete version)


Harnessing the Tiger in California's Gas Tanks
Innovative COPs finance critical street repairs in Oxnard, Santa Ana, other cities.

The streets of Oxnard were going from bad to worse and the City Council was ready to take action. The council directed city staff to address a backlog of more than $100 million in repairs, keeping three objectives in mind: prevent further deterioration by fixing the worst streets first; avoid dipping into the General Fund; and borrow at the lowest cost possible.
De La Rosa & Co. bankers and Oxnard city staff developed a multi-pronged financing approach, beginning by identifying utility, redevelopment and other revenue. Certificates of Participation securitizing gas-tax revenue became an important component of the overall plan.
California collects 18¢ per gallon for gasoline, diesel and other fuels at the pump. Each month, cities and counties receive 35% of the statewide gas tax, which must be used for street construction and maintenance. During a typical year, Oxnard receives about $3.4 million from the gas tax, barely enough to patch streets suffering from deferred maintenance.

“Our engineers tell us that if the streets are reconstructed and you maintain them appropriately,” Oxnard's financial services manager, Michael More, told the Bond Buyer newspaper, “you'll get more life out of them than if you just do the annual slurry seals and patching of older streets.”

De La Rosa developed an innovative $27.7-million COP program for Oxnard, the first long-term gas-tax deal in California with no General Fund pledge. The firm obtained an “A” underlying credit rating and “AAA” bond insurance, and secured an overall cost of borrowing of 4.74%. The bonds closed last December.

Banker John Kim said leveraging future gas-tax revenue to repair streets now makes good economic sense for most cities and agencies. “Every day they wait, streets fall into greater disrepair and the cost of fixing them rises,” said Kim, who led the DLR team on the Oxnard project.

De La Rosa quickly followed the Oxnard deal with a $60-million COP in Santa Ana, and is now assembling two gas-tax pools with the California Statewide Communities Development Authority. A new CSCDA website highlights the gas-tax program under “TRIP: Total Road Improvement Programs.”

De La Rosa structured the Oxnard and Santa Ana financing around a potential legislative roadblock. On Feb. 16, Gov. Arnold Schwarzenegger signed Assembly Bill 7, which delayed five months of gas tax payments to cities and counties until Sept. 30. The bill also allows local governments to backfill the delayed revenue with Prop. 1B funds.

The first gas-tax pool, a $20-million deal for Coachella and Indio, will close in April. The bonds will be sold uninsured, with a likely “A” rating from Standard & Poor's. The all-interest cost will likely be around 5.75%.

Possible participants in a second gas-tax pool being organized for summer include Richmond, La Puente, Long Beach and Sonoma County. The deadline for participating city councils and boards of supervisors to approve financing and validation is April 30. The default judgment on validation actions must be received by June 30, and the bonds will close in August.

A third pool may be organized for the fall. The deadline for participating city councils and county supervisors to approve financing and validation would be July 31. Default judgment on validation actions would have to be received by Sept. 30, and the bonds would close in November.


Values Gap “Cushions” Mortgage Crisis for City Planners
Market values still exceed assessed values, and this helps redevelopment agencies trying to project future revenue growth and stability.

The mortgage meltdown has seriously affected property values, particularly in California. Default rates have accelerated as lenders tightened credit standards and borrowers could not refinance Adjustable Rate Mortgages with short fixed periods. Continued defaults could lead to more foreclosures, more homes on the market, and steeper declines in residential real-estate values. Meanwhile, new buyers will find it harder to qualify for mortgages.

Many cities are already experiencing substantial declines in property transfer taxes. Further residential real-estate troubles are likely to curb consumer spending. However, market values still exceed assessed values, and this helps redevelopment agencies trying to project future revenue growth and stability.

When California’s real estate market was hottest, home prices increased by double-digits from year to year. Under state law, though, property assessments are capped at 2% annual growth, barring a resale of the property. The resulting gap between excess market value and assessed value offers many redevelopment agencies a substantial “cushion” from drops in revenue.

Even reselling property at substantially reduced prices may increase assessed value, and agencies will also benefit from reduced appeals by taxpayers who do not sell their homes. Protecting tax-increment revenues won’t solve the crisis, but may soften these latest blows.

On a side note, many analysts are beginning to view commercial-heavy project areas more favorably. Their traditional preference for residential property was based on the diversity of taxpayers and owners’ tendency to pay taxes on time and file fewer appeals. Commercial properties, which are much more closely tied to rents than residential, are less affected by property value increases. As such, commercial-heavy districts may be less vulnerable to an accelerating real estate correction.


Municipal Bond Issues Offer Homeowners Some Protection
The program is designed to refinance variable-rate mortgages, often with upcoming rate escalations, with fixed-rate mortgages.

Many state and local governments, facing the worst housing slump since the Great Depression, are considering or have issued municipal bonds to fund a mortgage-refinancing program. The program is designed to allow homeowners to refinance variable-rate mortgages (often with upcoming rate escalations) with fixed-rate mortgages.

Currently, state and local governments can issue taxable single-family mortgage revenue bonds secured by the individual mortgages. These bonds do not put taxpayer money at risk. For example, the Ohio Housing Finance Agency issued $175 million in bonds this past October. To qualify, a borrower's household income must not exceed 125% of the median gross income in their county.

The U.S. Congress recently tried to extend tax-exempt financing authority to state and local governments for this purpose. Treasury Secretary Henry Paulson also called for legislation that would allow states and local governments to use tax-exempt bonds to help homeowners refinance mortgages. Although the details, including raising the volume cap for private activity bonds, must still be worked out, many are pleased to see Washington involve state and local governments in the sub-prime crisis.


Finding Opportunities in the Financial Minefield
Prudent investors can purchase agencies and corporate bonds at spreads not seen in the past five years.

In this volatile environment, the ability to differentiate between wide spread assets and value is critical. Finding value depends on product knowledge, judgment, precise analysis and a sound understanding of the risk. De La Rosa's fixed-income professionals have the expertise and experience to help portfolio managers and investors identify opportunities to increase the returns on their portfolios.

Financial experts are still assessing the depth of the current economic crisis. Moody's anticipates nearly $60 billion in losses on home-equity loans and $278 billion in mortgage losses. The U.S. Conference of Mayors forecasts a $1.2-trillion drop in property values and a $6.6-billion decline in tax revenues. Wall Street, once overly optimistic about the availability of cheap credit, now appears equally pessimistic.

The structured-debt markets remain highly illiquid due to uncertainty in the sub-prime, residential mortgage and real-estate markets. Adding to the uncertainty is the questionable financial strength and future ratings of major monoline guarantors Ambac, FGIC and MBIA. FGIC has been downgraded to BB from AA. The next area of concern is the potential for defaults in equipment leases, auto securitizations, commercial real estate and other related asset classes.

The good news is that officials have many tools to ease the debacle. The Federal Reserve has responded quickly to the lack of available credit, reducing the discount rate and Fed Funds, changing collateral rules, and even bailing out major brokerage firms.

Meanwhile, prudent investors are finding exceptional opportunities to purchase agencies and corporate bonds at yield spreads not seen in the past five years. New entrants can take advantage of double-digit returns in certain mortgage-related securities.

The frenzy of lending for the sake of lending is now over. Credit markets are realigning around sound business principles. Markets are demanding more return for the risk. All classes of securitized assets are at the widest spreads on record to both Treasuries and swaps curves. For example, AAA fixed-rate home-equity spreads are trading at 250 basis points to Treasuries. Wrapped securities can be purchased at even wider spreads.

The widening in yield spreads for residential mortgage-backed securities is most pronounced in the home-equity arena. Single “A/A” equity bonds priced around a 90s handle a year ago are now trading at a multiple of coupon in the 10 to 30 price. Spreads have gone from about 250 to a range from 400 to 2,500, depending on the collateral performance and expectations for losses.


The Home Team
Spring is bursting forth and Californians are flocking to basketball and tennis courts, soccer fields and baseball diamonds. When they aren't competing themselves, many De La Rosa & Co. personnel are coaching young athletes.

President Ed De La Rosa coaches his son's basketball team, the Barrington Wildcats. “It's tremendously gratifying to watch the kids have fun while learning the principles of fair play, sportsmanship and teamwork,” De La Rosa said.

Meanwhile, Principal Ben Stern coaches his son’s All Star Soccer team, the Palisades Eclipse.

Senior Vice President John Moynihan is an assistant coach for his 11-year-old daughter's softball team, the Cal State Fullerton Titans. “Our league went with local college names this year,” Moynihan said. “I've been an assistant coach in the league for four years, spanning seven seasons, from rec ball to All Stars.”

Senior V.P. Jonathan Worley's daughters Madison, 14, and Riley, 11, and son Troy, 9, are fixtures in the Arcadia Girls Softball Association and Little League. “My favorite aspect of coaching youth sports is seeing the girls and boys grow up and watching their progression as athletes and thinking that you helped them along the way.”

In the Bay Area, Principal Ralph Holmes is helping his daughter's 4th-grade basketball team get their half-court press into gear, and Senior V.P. Eric Scriven is an assistant coach for his 9-year-old son's basketball team, the Mavericks. Associate Mike Meyer teaches tennis to kids from East Palo Alto and occasionally coaches promising young players, including an 11-year-old boy who is ranked in California.


Dueling Eminent Domain Measures on June 3 Ballot
From the League of California Cities

NO on Prop. 98
This anti-rent control measure would also eviscerate local land use planning, gut environmental protections and undermine public water projects needed to ensure the state an adequate supply of clean drinking water. The League of California Cities warns that this deeply flawed measure, also known as the “Hidden Agendas Scheme,” is being funded by wealthy apartment owners and mobile home park owners.

YES on Prop. 99
If passed by voters, the Homeowners Protection Act would provide solid protections for homeowners by prohibiting governments from taking an owner-occupied home to transfer to a private party. The measure is a direct response to the U.S. Supreme Court's infamous Kelo v. City of New London decision of 2005. The broad coalition supporting Prop.99 includes seniors, homeowners, business, labor, environmentalists, affordable housing advocates, public safety leaders and local government.

For more information on both initiatives and the campaign, visit http://eminentdomainreform.com