Monday, February 8, 2010

LA School District to Raise $1.75 Billion

Keep an eye on this.

The Los Angeles Unified School District, the nation’s second-largest after New York, plans to sell as much as $1.75 billion of bonds in mid-February to fund a school construction program called the largest in the U.S.,. reports Bloomberg

About a third of the offering will be conventional tax- exempt debt and two-thirds taxable Build America Bonds.

Taxable Los Angeles school securities due in 2034 last traded in a $1 million block Feb. 4 at a price-to-yield 6.33 percent, while comparable Build America debt issued by the state offered an average 1.4 percentage points more in yield that day, according to data compiled by Municipal Securities Rulemaking Board and Bloomberg. The yield difference between the two issues has widened more than 0.2 percentage points in large block trades since the end of October.

The bonds will be priced Feb. 17 and 18.

Standard & Poor’s assigned an AA- rating, the firm’s fourth highest, to the new issue and reaffirmed the same rating on the district’s $9.7 billion outstanding general obligation debt.

Revenue to pay the interest on the bonds comes from a special property- tax levy that district voters approved. The tax is collected by Los Angeles County and paid directly to bondholders.

This debt issue should go smoothly given the special tax that is collected to make the interest payments, but it is in California, where there are serious budget problems, so it pays to watch how well the deal closes. If there are any problems with this debt raise, it is a serious problem for California.

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