This financing is the second transaction that SWS senior managed for Metropolitan in 2020
Two weeks before SWS priced this subordinate lien financing, Metropolitan attempted to price the financing with a major bulge bracket firm serving as senior manager, but the pricing failed as the bulge bracket firm could not find sufficient investors. Given that in January 2020, SWS had priced a senior lien new money financing for Metropolitan at record low spreads, Metropolitan then replaced the bulge bracket firm with SWS and engaged our firm to lead this deal back into market.
Proceeds of the fixed-rate Series 2020A Bonds, rated AA+ by both S&P and Fitch, were applied to refund portions of nine outstanding variable rate series of bonds for debt service savings, thereby de-risking Metropolitan’s debt portfolio.
Leading up to the bond pricing, interest rates declined to new all-time lows as a result of the market’s reaction to the global outbreak of COVID-19. On the day before pricing, the Federal Reserve executed its first emergency cut to its target federal funds rate since the Great Recession, producing a rate cut of 50 basis points. Recognizing the volatility in the market, SWS recommended that Metropolitan use a “Day-to-Day” negotiated pricing strategy, allowing it to assess the market each morning and determine if it would provide optimal conditions for the bond pricing.
Ultimately, SWS proposed that Metropolitan enter the market on Wednesday after investors had considered the impact of the Fed rate cut. To optimize investor demand, SWS recommended a financing structure that included maturities between 2023 and 2029, with bifurcated coupons in 2023, 2027, and 2029.
Metropolitan received over $250 million of orders, making the transaction 1.7x oversubscribed. 17 investors submitted orders including 9 new investors. The financing produced $8.4 million of PV savings or 4.4% of refunded par. Savings exceeded the levels that Metropolitan had expected to receive on its initial postponed subordinate lien financing.