Los Angeles schools bringing $1.1B of sustainability bonds
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The Los Angeles Unified School District plans to come to market Wednesday with $1.1 billion of general obligation bonds designated as sustainable.
Lead manager RBC Capital Markets is scheduled to price the bonds Wednesday after a retail order period Tuesday.
The debt will enter a market influenced by the Federal Open Market Committee’s decision last week to
Bloomberg News
“We expect to receive a good market reception,” said Timothy Rosnick, LAUSD’s director of capital planning and budgeting. “LAUSD has a track record with its building program and investors know we are a sold investment. Additionally, there is not a lot of other competition in the California bond market at the moment.”
This week’s $14 billion muni primary contains multiple deals topping the billion-dollar mark. LAUSD’s biggest in-state competition comes from the California State Public Works Board, with an $800 million deal.
The bonds carry a sustainability label with a third party opinion from Kestrel, who found they meet the International Capital Market Association’s criteria for green bonds, because the projects are part of the school district’s efforts to move to net zero energy efficiency, and because the school district has a large population of economically disadvantaged children, according to an online investor presentation about the deal.
The bonds also support the school district’s sustainability program, which meets the state’s criteria for green buildings, according to the presentation.
LAUSD, with more than 400,000 students, is the nation’s second-biggest school district by enrollment, trailing only New York City. It serves many students and families who are economically disadvantaged, many of whom are English learners, according to the presentation.
The school district’s bonds are backed by multiple bond measures approved by voters since 1997.
This week’s deal consists of bonds approved in Measure Q of 2008 and Measure RR of 2020.
Though the school district’s concentration of economically disadvantaged students helped its bonds qualify for the sustainability criteria, it could also conceivably represent budget challenges.
But Rosnick said it does not represent a budget challenge, because both criteria also mean the school district qualifies for extra funding from both the state and federal government in separate programs.
LAUSD started its school construction, repair and replacement efforts in 1997 to address significant school overcrowding and aging schools.
To provide every student with access to a neighborhood school operating on a traditional two-semester calendar, the district placed bonds before voters through the mid-2000s.
In 2008, with the passage of Measure Q, the District turned its focus to begin updating and modernizing its deteriorating school facilities.
“When the building program first started in 1997, it was focused on new schools, Rosnick said. “At this point, it’s focused on upgrading, updating, replacing and right-sizing aging and deteriorating school facilities for 21st century student learning and college and career preparedness.
The school district will be going before voters again in November with its $9 billion Measure US aimed at increasing school safety and to carry its modernization program further.
It has a $27 billion school building program underway, but some of the funding comes from state matching funds, he said.
The school district, which started its building program in 1997, has shifted its focus to modernization to meet the needs of the 21st century, he said.
Measures Q and RR, which have $8.7 billion in bond authorization prior to the sale, will have $7.6 billion remaining after, Rosnick said.
LAUSD
Ahead of this week’s deal, Moody’s Ratings affirmed its Aa2 rating on LAUSD GO bonds and Aa3 issuer rating of the district, which it had upgraded one notch in the spring.
Moody’s cited an improved general fund balance, “supported by the district’s efforts to align spending with declining enrollment and reduced state funding.”
Fitch Ratings affirmed its AAA GO bond rating and AA-minus issuer default rating; it had upgraded the issuer rating in April. Fitch has been assigning AAA ratings to California school district GOs based on the
Fitch assigns a split rating to California school bonds based on “a dedicated tax analysis and an analysis of legal opinions presented to Fitch by district counsel,” analysts wrote.
Kroll Bond Rating Agency affirmed its AAA GO rating Thursday. Enrollment is down 45% from its 2003 peak of 746,000, the rating agency said.
“KBRA expects that continued expenditure adjustments will also be required to maintain balanced operations and adequate financial and operating reserves,” its report said.
