SAN FRANCISCO Nov 25 Richmond, California, may
need to offer higher yields to lure hesitant investors after a
bond sale failed three months ago, the city's finance director
said, citing its plan to use eminent domain to seize mortgages
with negative equity.
Finance Director James Goins said in a Nov. 19 report that a
yield premium, estimated at half a percentage point of
additional interest, would reduce savings on Richmond's planned
$34 million refunding deal by just over $1 million over the life
of the debt. It would provide the city with $1.2 million in
projected savings from the sale.
Richmond tried to sell the debt in August, but underwriter
RBC Capital Markets found no buyers after the city discussed its
eminent domain plan in its preliminary offer statement.
Richmond's city council endorsed the mortgage-seizure plan
in September, making the city the first in the nation to embrace
using eminent domain to take over so-called underwater home
A mortgage is under water when its unpaid balance is greater
than its property's market value. Eminent domain allows
governments to seize private property for a public purpose.
Richmond has proposed buying more than 600 delinquent and
performing mortgages at deep discount, pegged to the properties'
current appraised prices, to refinance them and reduce their
If its offers are rejected, Richmond could invoke eminent
domain to acquire the mortgages. Critics say that if Richmond
goes through with its plan to partner with investor group
Mortgage Resolution Partners to acquire the loans that way, it
could set a threatening precedent for the market for
private-label mortgage-backed securities.
Supporters say the plan would make mortgages more
affordable, avert foreclosures and alleviate blight in Richmond,
one of the San Francisco Bay area's poorest cities.
The plan, which has spawned lawsuits, has probably triggered
"headline risk" among investors for Richmond's refunding bonds
in the $3.7 trillion U.S. municipal debt market, which the
city's new underwriter aims to address, according Goins' report.
Stifel, Nicolaus & Company Inc is the deal's underwriter and
RBC Capital Markets is its structuring agent.
Stifel Managing Director James Cervantes said on Monday the
negotiated deal would refund bonds for the successor agency to
Richmond's redevelopment agency, and that the debt is backed by
tax-increment property tax revenue from properties that have
minimal exposure to the eminent domain plan.
Commercial parcels account for two-thirds of the value of
the properties included in merged project areas of the successor
agency, and less than 100 of the 4,500 residential properties in
those areas would be affected by Richmond's eminent domain plan,
"You just need to get investors to focus on the bonds," he
said, adding that Richmond's deal may come to market next month
or in January.
Comparable refunding bonds issued by the successor agency to
Glendale, California's redevelopment agency and sold earlier
this month had a 4 percent coupon on their five-year maturity.