Baltimore County to price $180M GO deal with BABs refunding

High-grade Baltimore County plans to come to market Wednesday with a $180 million general obligation refunding deal, part of which will be used to refund its outstanding Build America Bonds.

The $180.24 million deal comprises $76.085 million of metropolitan district bonds and $104.155 million of consolidated public improvement bonds.

The metropolitan district bonds will refund various series of the county’s metropolitan district bonds, including $72.4 million of BABs, according to the preliminary official statement.

The consolidated public improvement bonds will refund outstanding public improvement bonds, including $93 million of BABs, for debt service interest rate savings, the POS said.

With the deal, the county looks to reduce the administrative burden, though the refunded bonds will only lead to “modest savings,” said Susanne Murray, assistant vice president for Moody’s Ratings.

Baltimore County is one of around 40 issuers that have either called BABs, posted conditional calls or announced considerations of financing plans in this regard, totaling $19.2 billion this year, according to J.P. Morgan.

Refunding BABs through extraordinary provision redemptions gained prominence at the start of the year, while some controversy arose as result with investors pushing back on the deals.

Baltimore County is a “high-quality issuer” that comes to market fairly frequently, said Jeff Timlin, a managing partner at Sage Advisory.

The county last sold four series of GOs in July in the competitive market, said Pat Luby, head of municipal strategy at CreditSights.

“The 10-year maturities of the two GO refunding bonds were offered at +11 and the GO bonds (which sold 30 minutes later) were offered at +10,” he said.

BVAL has the three series of 10-year bonds due 2/1/34 evaluated at +10 and the one series of bonds due 7/1/34 at +11, Luby said.

“Given where we are in the market cycle and the prospect of pretty robust supply between now and mid-October, we’re going to be coming into more of a buyer’s market,” he said.

If there is a little bit of a concession in the market, Baltimore County could be a potential opportunity for investors to pick up a natural AAA rated issue, a little bit behind the AAA curve, Luby said.

“There’s nothing specific about that deal that would not get done and done well,” Timlin said, noting demand exists for an “AAA curve type of yield structure.”

S&P has rated the upcoming GO sale as AAA and the outlook is stable.

Baltimore County’s credit profile remains stable, “with a growing tax base and population, long-standing financial policies, and a demonstrated record of maintaining financial balance supporting the rating,” the rating agency said in a report.

After several years of surplus operating results leading to “highwater marks” for reserves at the end of the FY 2022, the county started using reserves for capital projects and “to reduce reserves to its reserve policy target of 10% of operating revenue,” S&P said.

“This increase in pay-as-you-go capital funding beginning in fiscal 2023 is expected to continue for several fiscal years and could lead to a material drawdown in reserves and pressure the rating beyond the outlook period; however, we expect the county to maintain adjusted available reserve levels commensurate with those of state and national peers in the near term, leading to stability in the rating,” S&P said.

Moody’s has rated the deal as Aaa and the outlook as stable.

“The Aaa issuer rating reflects the county’s diverse and substantial local economy that benefits from institutional presence and its status as a regional economic hub,” Moody’s said in a report.

The county’s reserve position after fiscal year 2023 was an “all-time high” of 28% of revenue, but plans for one-time contributions to capital spending and pension/OPEB funding are in place to bring that down over the next few years, the rating agency said.

“While that plan will help its leverage metrics, its financial position will continue to be out of alignment with its peers in the Aaa category,” Moody’s said.

The stable outlook for Baltimore County shows the county’s economy is expected to remain strong and the management team will ensure it remains “fiscally healthy” despite projected reserve declines.

Fitch has not rated the transaction but most recently assigned AAA ratings to several GO bonds, sold competitively on July 9.

BofA Securities is the lead manager on the deal, with Siebert Williams Shanks serving as a co-manager.

Public Resources Advisory is the financial advisor and McKennon Shelton & Henn is the bond counsel.