Miami Lowers Borrowing Costs as Latin-America Hub: Muni Credit
Miami, the Latin-American base for companies such as Harley-Davidson Inc. (HOG), is set to lower its borrowing costs after posting a budget surplus five times greater than expected amid a real-estate revival.
Florida’s second-biggest city, where median condominium prices leaped almost 25 percent in October, is selling $50 million of tax-exempt bonds as soon as this week under the cloud of a U.S. Securities & Exchange Commission investigation. The agency is looking into possible fraud related to the disclosure of financial information dating to fiscal 2007 and 2008.
Yet debt from a similar sale last year has gained as much as 20 percent in value, and the city’s finance chief predicts a lower interest rate than on that issue. Miami is benefiting in part from a three-month rally in the $3.7 trillion local-debt market. Investors are also drawn by a growing economy. The area’s jobless rate is at a four-year low, while Miami’s airport is the primary Latin America gateway for AMR Corp. (AAMRQ)’s American Airlines.
“You can’t deny the fact that it’s a thriving hub of Latin-American business,” said Howard Cure, director of muni research in New York at Evercore Wealth Management LLC, which oversees about $3.8 billion. “And the real-estate market’s picked up because of that and the foreign money that’s come in.”
Miami, with a population of 409,000, is tapping investors amid the best performance for munis in six years. City and state debt is set to earn more than Treasuries for the second straight year, the longest stretch since 2006, Bank of America Merrill Lynch data show. Investors looking for safety in local obligations have pushed yields to the lowest since 1965, according to a Bond Buyer index.
“We know the market is hungry,” Janice Larned, Miami’s assistant city manager and chief financial officer, said in an interview.
She anticipates Miami will pay a true interest cost of no more than 4.25 percent on the planned offer, with the debt maturing through 2030. By comparison, the city in July 2011 sold revenue bonds due in 18 years to yield 5.64 percent, data compiled by Bloomberg show. This week’s deal is limited to qualified buyers because of the SEC investigation.
Bond proceeds will help finance a tunnel project that will increase access to the Port of Miami through the city’s downtown, Larned said. Miami had the most departing passengers of any U.S. cruise port in 2010 and 2011, with 1.97 million last year, according to the U.S. Maritime Administration.
The debt will be repaid with non-property-tax collections, as well as some revenue from development districts that stand to benefit from the project, Larned said.
The city had a budget surplus of $45 million for the fiscal year ending Sept. 30, according to unaudited numbers. That’s $37 million more than what officials anticipated, Larned said.
“We’ve gone through a thorough due-diligence process,” Larned said. “We finished up the year with a very optimistic number that we’re confident it’s going to hold.”
Since 2009, the SEC has been investigating Miami for potential fraud regarding fiscal statements and bond disclosures.
SEC enforcement staff in July sent the city a letter stating that it will recommend that the agency file civil fraud charges against Miami based on transactions that occurred in fiscal years 2007 and 2008, according to bond documents.
Larned said she and other city officials plan to meet with the SEC’s director of enforcement as soon as this week.
“Our position is that we did nothing wrong,” Larned said.
Moody’s Investors Service last month assigned this week’s sale an A3 rating, six steps below the top, with a negative outlook in part because of the SEC investigation. Fitch Ratings grades the debt one step lower, at BBB+.
Fitch said fiscal 2012 would mark the second straight year the city has been able to bolster its reserves. Officials are analyzing whether to enhance this week’s borrowing with bond insurance, Larned said.
Investors can find extra yield on Miami bonds because of the investigation and turnover in city management, said Paul Brennan of Nuveen Asset Management in Chicago. The firm oversees about $85 billion of munis.
“You have to be willing to accept some volatility in the ratings and potentially in the performance of the bonds until these issues get resolved,” Brennan said.
Fitch in its report cited the city’s position as an international trade center and tourist destination as bolstering its economy.
The Miami-Fort Lauderdale area’s October jobless rate was 8.2 percent, down from 11.9 percent in 2010, U.S. Census data show. The 2010 level was the highest in at least eight years.
At the same time, the median sales price for condominiums in Miami-Dade County, which encompasses the city, jumped about 24 percent in October from a year earlier, according to a report from the Miami Association of Realtors and the local Multiple Listing Service system.
Miami hosts the Latin American headquarters for companies including Visa Inc. and motorcycle manufacturer Harley-Davidson. The city’s financial district along Biscayne Bay is lined with banks such as Brazil’s Itau Unibanco Holding SA (ITUB4), the largest lender in Latin America.
The city’s airport this year doubled the size of its terminal for international arrivals.
Following is a pending sale:
MASSACHUSETTS is set to issue about $381 million of general-obligation bonds as soon as this week, data compiled by Bloomberg show. (Updated Dec. 5)
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