San Bernardino School Bonds Test City’s Bankruptcy: Muni Deals

The public school district in San Bernardino, California, plans to sell $152 million in bonds for repairs and improvements this week, its first issue since the separate city government filed for bankruptcy last year.

Voters in the San Bernardino City Unified School District, California’s eighth-largest with more than 54,000 students, authorized $250 million in bonds in November to replace roofs, upgrade wiring and lighting, and add libraries.

The vote came as San Bernardino, which is financially independent, struggled to cut spending after becoming the second-largest U.S. city to seek protection from creditors.

“We’re totally separate,” Linda Bardere, a spokeswoman for the district, said in an interview. “The district is an attractive investment opportunity.”

While the city skipped a $1 million interest payment on pension bonds, Moody’s Investors Service rates this issue from the school district A2, its sixth-highest level, bond documents show. Standard & Poor’s grades it A, also sixth-highest.

This week’s sale is set for May 22 and includes taxable and tax-exempt debt, data compiled by Bloomberg show. Tax-exempt bonds from the district that are callable in August 2014 traded May 16 with an average yield of 1.87 percent, for a yield spread over benchmark debt of about 1.6 percentage points. The securities are insured by Assured Guaranty Municipal Corp.

Bardere said some vendors have asked whether the city bankruptcy would affect payments, and district officials assured them that there was no reason for concern.

San Bernardino, with a population of 213,000 about 60 miles (100 kilometers) east of Los Angeles, sought bankruptcy protection after sales and property taxes failed to recover from the 18-month recession that ended in 2009.

Stockton, California, with about 296,400 residents, became the largest U.S. city to seek bankruptcy protection in June.

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