San Diego Unified School District
2016 General Obligation Bonds
(Dedicated Unlimited Ad Valorem Property Tax Bonds)
$5,605,000 (Election of 2008, Series J-1)
$39,395,000 (Election of 2008, Series J-2) (Federally Taxable)
The firm eclipsed the pricing and investor distribution benchmarks that we had set in the prior transactions
Siebert Cisneros Shank (“SCS”) served as senior manager for the San Diego Unified School District on May 5, 2016. This transaction was the firm’s third senior managed transaction for the District since 2015. The firm eclipsed the pricing and investor distribution benchmarks that it had set in the prior transactions.
The bonds were used to fund the construction and improvement of school facilities listed under 2008’s Proposition S. To generate this new money capacity, the District had completed two refunding transactions in April that generated total annual debt service savings of $54.62 million from 2016 through 2029. From the debt service savings generated, this transaction amortized a maximum par amount of $45 million to produce new money proceeds. To minimize aggregate debt service, the bonds were structured to fill in the debt service as early as possible in the debt service savings range. Ultimately, the bonds were structured with maturities from 2016 through 2027.
The rating agencies maintained the ratings of Aa2/NR/AAA/AA+ (Moody’s/S&P/Fitch/Kroll). With these ratings coupled with an improving municipal bond market tone, momentum was overwhelmingly positive heading into the week of pricing. During the week of pricing, the District faced potential competing transactions such as a $275 million Los Angeles Department of Water & Power transaction scheduled to price on the same day and three California school district and community college district transactions each approximately $40 million in size on average. As the pricing day approached, the Los Angeles Department of Water & Power decided to accelerate its transaction one day early, which SCS also senior managed, after a robust retail order period. This positive momentum continued to the following day and SCS further decreased its preliminary pricing spreads 2 to 3 basis points lower in the 2022 through 2027 maturities from the pre-marketing scale the day before.
On the day of pricing, SCS recommended aggressive pricing spreads that included no spread over AAA MMD in the 2019 through 2023 maturities. In addition, we offered 4% premium coupon bonds in various maturities in addition to the 5% premium coupon bonds. As the order period commenced, investor orders were trickling in with one uncommon occurrence. A large institutional investor which normally doesn’t submit bond orders until the end of the order period stepped up early on to commit to the bond offering. This was a result of the District’s extensive work and leadership on SB 222 and obtaining counsel opinions on the ad valorem taxes with respect to bankruptcy risks.
At the end of the order period, there were $121 million in total orders from 16 different investors. Each maturity was no more than 2.6x oversubscribed. For municipal bond transactions, this was the right amount of orders signifying that despite the aggressive pricing levels, this transaction was priced correctly. With a strong order book, our firm recommended no adjustment to the pricing spreads. The only change was to adjust the 2026’s 5% coupon to a 4% coupon to pick up the excess orders for the 4% coupon in the 2025 maturity.
The re-pricing generated an all-in true interest cost of 1.50% and an aggregate debt service of $59.12 million, well below AB 182’s limit. When compared to the District’s Series R-5 Refunding bonds priced two and half weeks before, on comparable maturities, this transaction’s pricing spreads were 2 and 3 basis points lower in the 2025 and 2026 maturities, respectively. Our firm’s sales desk generated 100% of the priority orders submitted by the underwriting team.