LOS ANGELES - The South San Francisco Redevelopment Agency, which failed this month to attract bidders for an $11 million deal, is now searching for an underwriter to issue the bonds through a negotiated sale.
After discussing the matter, city officials decided to "see if [they can] get it done this way," especially because "it does seem like there's interest" from the market, said Lora Stovall, a principal of Bartle Wells Associates, the agency's financial adviser.
Stovall said the agency this week expects to mail requests for proposals from underwriters, adding that responses will be due in early January.
The agency on Dec. 9 tried to sell $11 million of tax allocation bonds for its Gateway redevelopment project through a competitive auction. But the deal received no bids, even though it had already been postponed earlier in the fall to address certain underwriters' concerns.
In interviews this week, market participants confirmed they are interested in the bonds. But they said the issue requires extra homework, primarily in regard to concerns over two owners of property in the Gateway project area who are appealing their assessed valuations.
If those appeals succeed, net tax increment revenue available for debt service could decline and result in a coverage ratio of 1.2 times maximum annual debt service, according to the preliminary official statement for the competitive deal earlier this month.
Some market participants said busy schedules earlier this month made it difficult to carve out time to analyze the South San Francisco deal.
"People had a lot on their plate," noted Kenneth Williams, managing partner at Stone and Youngberg, a municipal investment banking firm. "We just didn't have a chance to do our due diligence" on the South San Francisco deal.
Others echoed that view. Among other things, they noted it would take more time to get the deal approved through their internal processes because the bonds are not rated.
Accordingly, they said the agency's failure to attract bids did not necessarily reflect on the creditworthiness of the issue. But they also noted that a 1.2 times coverage ratio would be somewhat thin for their tastes, so they will check whether the margin could erode further if any other owners in the area appeal valuations.
Stovall said there does not appear to be much more potential for additional appeals. She pointed out that there are only nine property owners, and one of those owners made a recent purchase that established valuation.
The Gateway project is a master-planned office park development north of San Francisco International Airport that includes hotels and commercial space.
The redevelopment agency explored obtaining a rating for the deal. But rating officials expressed concern over the relatively small project area - 117 acres - and the fact that about half of the assessed valuation in the area is concentrated in one owner.
Bond proceeds would pay down developer advances to that owner, Homart Development Co., which is a member of the Coldwell Banker Real Estate Group, a subsidiary of Sears, Roebuck & Co.
About 74 acres in the project area are developed, and there is a 10-year track record of tax revenue collections. But a trader noted that development prospects are less certain in the current economic environment, a factor that could limit the the project area's ability to generate additional tax revenues in the near future.
