Highly rated deals out of Delaware, Virginia issuers to help in price discovery

Upcoming highly rated offerings from two Virginia agencies and the state of Delaware should provide some direction for yield curves as the market digests larger supply.

Delaware is putting $367 million of general obligation bonds out for competitive bid on Tuesday.  

The Virginia Resources Authority is set to price Tuesday $135.73 million of Virginia Pooled Financing Program infrastructure revenue refunding bonds while the Virginia Housing Development Authority is set to bring a reoffering of $240 million of tax-exempt and taxable mortgage revenue bonds the following week.

Delaware, one of few states with triple-A ratings from all four major ratings agencies, comes to market Tuesday with a competitive sale of $298 million of general obligation bonds series 2024A and $69.08 million of general obligation bonds series 2024B.  

Proceeds of the sale will fund the state’s ongoing capital program and refund outstanding GO bonds for debt service savings. Fitch Ratings rates the bonds AAA with a stable outlook.

“Delaware’s ‘AAA’ IDR and GO bond rating are based on strong financial performance, supported by proactive management and institutionalized protections designed to ensure surplus operations,” Fitch said in a report. Long-term revenue growth has accelerated in recent years, and Fitch anticipates it will remain at least above the long-term level of inflation. 

S&P Global Ratings rates the state AAA with a stable outlook.

“Delaware’s demonstrated history of proactive fiscal management and well-embedded strong financial policies underpin the rating,” said S&P Global Ratings credit analyst Geoff Buswick. 

S&P also reserves one caveat on the rating. “We could lower the rating if the state’s budget or reserve profile were to be challenged, or if worsening trends in retiree health care liabilities increase its other post employment benefits liabilities to a level that is not commensurate with the rating.”

Moody’s Ratings and KBRA rate the state Aaa and AAA.

The Virginia Resources Authority’s deal includes a negotiated offering of $135.730 million of Infrastructure Revenue Bonds and a competitive sale of $61.465 million of state moral obligation revenue bonds. The VRA uses the net proceeds of its bonds to purchase or acquire local obligations from Virginia local governments to finance projects for those governments that might not be able to issue such debt on their own.

The VRA’s moral obligation bonds are rated Aa1 by Moody’s and AA by S&P while its infrastructure revenue bonds are rated Aaa and AAA by the agencies, respectively.

The Virginia Housing Development Authority’s offerings are broken into an $80 million tranche of 2023 Series E-Non-AMT bonds and $160 million of 2024 Series A-taxable bonds expected to price the week of May 6. The bonds are designed to fund housing and spur the development of multifamily communities.

The proceeds from some of the bonds will be used to finance mortgage loans either alone or in combination with other available assets or bond proceeds. Mortgage bonds are secured by loan payments made on real estate typically owned by homeowners. 

The deal’s single-family program will allow the authority to buy and make loans on single family homes by using assets from the bond sales and contributions from the general fund, along with proceeds from the Government National Mortgage Association and securitized loans through the Federal Home Loan Mortgage Corporation.

The loans are targeted at households with low to moderate income levels and will fund first and second mortgages.

The multifamily program will make or purchase multifamily mortgage loans and finance authority-owned multifamily developments. The loans will be secured by first liens. 

The authority notes that it will attempt to accommodate multifamily developers requesting tax-exempt bonds with short-term maturities to meet the requirements of federal low-income housing tax credit programs. 

LIHTC issues and a possible reform has been an issue of interest in Congress as the House Ways and Means passed Tax Relief for American Families and Workers Act bill in early February. Since then, it’s been stuck in the Senate. 

The legislation could boost issuance of private activity bonds that real estate developers tap to build affordable housing.  

Moodys and S&P Global Ratings both gave the bonds triple-A ratings.

“In our opinion, the program exhibits social capital opportunities reflected in the program’s purpose to invest in affordable housing for the state’s low-to-moderate-income residents through the development and preservation of rental housing,” S&P said in an April 10 update.

“The rating also incorporates our view of the somewhat elevated physical risks for Virginia given its exposure to rising sea levels and coastal flooding in the Hampton Roads metropolitan statistical area and along the Eastern Shore,” S&P said. 

Moody’s assigns the VHDA RHBs its Aa1 rating with a stable outlook. 

Per Moody’s, “The Aa1 rating is based on Virginia Housing’s issuer rating as its general obligation is pledged to secure the bonds. The issuer rating reflects Virginia Housing’s very strong financial performance, as demonstrated by high 1.83x program asset-to-debt ratio as of June 30, 2022, sizable unrestricted net assets available to cover general obligations, and successful operational and debt management track record.” 

The latest tranches of home funding from the VHDA are part of a $1.75 billion program the state dedicated to housing that it announced last May.