On March 29, 2022, Raymond James served as book-running joint senior manager for the $1.050 billion sale of taxable revenue bonds issued by the California Health Facilities Financing Authority. This was the final installment under the State of California’s (the “State’s”) $2 billion authorization for the No Place Like Home (the “NPLH”) program.
The Bonds will fund permanent supportive housing for persons experiencing mental illness who are homeless or who are at risk of homelessness. The Bonds were self-designated by the State as Social Bonds to reflect the use of proceeds.
The Bonds are backed by a portion of Proposition 63 income taxes (1% surcharge on taxable personal income in excess of $1 million approved by voters in 2004). Legislation adopted in 2016 established the NPLH program and was subsequently affirmed by voters in 2018.
The Bonds (rated Aa3/AA-/AA-) were structured as fixed rate, taxable bonds, with serials maturing annually from June 1, 2024 to June 1, 2034 and two index-eligible term bonds maturing on June 1, 2037 and June 1, 2041. The Bonds have a make-whole call option until June 1, 2032, at which point the Bonds are subject to an optional par call.
In the weeks leading up to the pricing, the Fed raised overnight funding rates by 25 bps and Chairman Powell relayed a more aggressive approach to tackling rising inflation. This came as a surprise to the markets, moving rates sharply higher and inverting the yield curve for the first time since 2019. In addition, the municipal market continued to be under selling pressure due to elevated fund outflows and negative investor sentiment.
Raymond James began pre-marketing the Bonds on Friday, March 25, 2022. That day, the 10-year treasury reached a two-year intraday high of 2.50%, more than 35 bps higher than the start of the week. The additional interest cost forced us to rework the amortization structure to comply with the complex program parameters and objective of maximizing bond proceeds. Working with the State’s Municipal Advisor, we were able to develop a structure that achieved these goals. In addition, the flattened yield curve presented an opportunity to structure an additional index-eligible term bond in 2037 (along with one in 2041) at the same TIC as serial bonds.
Raymond James marketed the Bonds to active taxable municipal investors both in California and nationally. This included all Social Responsible Investing (“SRI”) and Environmental, Social and Governance (“ESG”) investors and index-eligible bond investors. The syndicate generated in excess of $7.2 billion of total orders from 127 unique investors, of which $6.990 billion came in through Raymond James. Nearly $1.5 billion of our orders came from 54 non-Tier 1 accounts made up of municipalities and smaller depository institutions, a distinguishing advantage of the Raymond James distribution platform. The Social Bond designation generated $1.063 billion in orders from 11 investors with ESG or SRI objectives. Raymond James was able to reduce spreads by up to 20 bps from the initial pre-marketing levels. The financing produced $1.035 billion of proceeds for supportive housing projects in California at a total interest cost of 4.20%.