The Los Angeles Unified School District sold $2.97 billion in bonds to refund previously issued securities.
The bonds mature between 2024 and 2034, yielding between 2.99% and 3.5%. They received a rating of AAA from Fitch Ratings, AAA from Kroll Bond Rating Agency, and Aa2 from Moody’s Investors Service.
The rating “reflects the large, growing and diverse tax base supporting bond repayment,” Fitch analysts wrote.
The issuance comes amid falling enrollment and increasing financial pressure on the school district. Enrollment has fallen by 28% since 2014-15, worsened by a major drop after the COVID-19 pandemic, according to the official statement accompanying the sale of the bonds. The district expects enrollment to fall an additional 2.5% through fiscal year 2025-26, according to the bond documents.
Last year, the district announced a hiring freeze and said it would consider closing some schools.
The school district will use the issuance proceeds to achieve debt service savings by refunding bonds it sold in 2009, 2010, and 2014. The new, tax-exempt bonds pay lower yields than the previously issued securities.
The school district sold the 2009 and 2010 bonds under the so-called Build America Program, which President Barack Obama unveiled in the aftermath of the Great Recession to spur infrastructure spending. Issuers across the country are now seeking to refund those bonds and replace them with lower-yielding securities, citing a force majeure provision as legal basis. But investors, who could take losses from the refunding, are responding in some cases with threats of litigation.
The Los Angeles Unified School District is the second-largest in the United States. The bonds are general obligations of the school district, payable by property taxes.
BofA Securities, Inc, Jefferies LLC, and RBC Capital Markets, LLC served as lead underwriters on the issuance, purchasing the bonds for $3.33 billion. The price reflected a premium of $363.5 million. Public Resources Advisory Group acted as municipal advisor.