District of Columbia
General Obligation Refunding Bonds,
SCS was able to price these bonds at the tightest spreads ever achieved in the history of the District of Columbia’s GO credit
On May 17, 2017, Siebert Cisneros Shank senior managed the $564 million District of Columbia General Obligation Refunding Bonds, Series 2017A which were issued to currently refund a portion of the District’s outstanding Series 2007A GO Bonds and all of the outstanding Series 2007B GO Bonds.
The District met with rating agencies in March prior to naming the underwriting team. Moody’s and Fitch affirmed the District’s Aa1/AA ratings with “stable” outlooks. S&P also affirmed the District’s AA rating and upgraded their outlook to “positive” from “stable”.
SCS assisted the District in creating an investor presentation that was posted online concurrently with the release of the POS. The presentation was viewed by 16 investors, 10 of which ultimately placed orders for the District’s transaction. SCS presented the District with various structuring alternatives, with the District ultimately selecting the structure that produced level savings by refunded series and generated the largest amount of PV savings.
In the weeks leading up to the pricing, MMD saw steady increases from the lows experienced in mid-April due to news surrounding the French election as well as media attention surrounding the Trump White House. The municipal market experienced a reversal in these increases in the days prior to pricing, however, thanks to positive technicals from future calls and redemptions.
On Monday and Tuesday, the SCS salesforce heavily marketed this transaction to investors in order to gauge investor interest in 4% coupons in the longer maturities.
Leading into pricing, there was a positive market tone with deals being well-received despite the large amount of supply expected for the week (~$8.8B). The MMD was at its richest levels of the year versus Treasuries.
The morning of pricing, SCS felt confident with entering the market with the aggressive spreads from the pre-marketing wire and recommended pushing up the order period in order to take full advantage of the positive market tone.
Investors were very attracted to this deal as a result of the strong credit qualities of the District—in total the transaction received over $2.43 billion in priority orders from 112 different investors of which up to 80* were not among the existing reported holders of the credit. SCS placed more than $2.35 billion in priority orders (97% of total priority orders).
The Bonds were oversubscribed for by 3 to 8x, allowing SCS to tighten spreads by 2 to 5 bps in the first 10 years and by 7 to 8 bps in years 2028-2037. The 4% coupon bifurcated maturities in 2036 and 2037 were also tightened by 6 bps.
These re-pricing yields resulted in spreads of between 2 and 20 bps, which are the tightest spreads ever achieved in the history of the District’s GO credit. Final spreads were up to 30 bps tighter than the District’s last transaction that priced in November 2016.
The refunding generated over $103 million in PV savings (15.75% of refunded par) and an all-in TIC of 3.50%. Strong investor outreach and salesforce marketing combined with the working group’s ability stay on-schedule, enabled the transaction to price in optimal market conditions leading to significant savings for the District.
*Source for existing holders: Emaxx. Not all investors are required to report holdings.