This transaction represented SWS’ third senior managed transaction for LACMTA.

The bonds were issued to refund the Taxable Series 2010-A Build America Bonds using the extraordinary optional redemption provision triggered by the tax law change effectuated by sequestration. SWS also analyzed a 7-year par call and non-callable structure for the Bonds

LACMTA targeted positive present value savings for the refunding.

Positive annual debt service savings were also desired for the Bonds not to be subject to the Additional Bonds Test. The refunding ultimately achieved PV savings of $9.44 million (1.96% of refunded par).

Pricing Strategy and Results

Municipal market conditions leading up to pricing were relatively stable but somewhat uncertain following the Fed’s 50bp rate cut on September 18th and the upcoming presidential election on November 5th.

The transaction was initially scheduled to price on October 9th but SWS recommended accelerating the timing to October 2nd to mitigate market uncertainly and the risk of savings falling below the positive savings threshold. Further, the anticipated supply during week of October 2nd was lighter due to the Rosh Hashanah holiday before picking up again during the week of October 9th, and economic releases were relatively minor. Given the relatively short amortization structure (serial bonds: 2025 – 2039), SWS recommended a one-day retail order period on Tuesday (10/1) and an institutional order period on Wednesday (10/2) with a potential to accelerate on Tuesday if market tone allowed.

Successful retail order period with $374 million in orders – mostly from professional retail investors. A weakening of the Treasury bond market that persisted in the institutional order period prompted SWS to adjust the pricing strategy to maintain the current investors and attract institutional investors where there were balances. At the end of the Institutional Order Period, SWS lowered pricing spreads between 2 to 4 bps for the maturities that were oversubscribed.

The longer-dated maturities from 2035 to 2039 had some unsold balances as the most robust demand came from professional retail investors on the shorter end of the yield curve – SWS stepped up to underwrite the unsold balances of $73.185 million. In total, 45 investors submitted orders with 13 potentially representing new investors of LACMTA.