Joplin Rebuilding After Tornado Saves on School Bonds
Joplin, Missouri, where 161 people were killed in the deadliest single U.S. tornado in almost 60 years, is joining hurricane-ravaged East Coast towns borrowing to rebuild while municipal yields are near generational lows.
About 3,000 of Joplin’s 7,500 students are in temporary classrooms as construction progresses on four schools with the help of $62 million in general-obligation bonds the city’s school district sold in July and last month, said Paul Barr, the chief financial officer. The rebuilding is a critical element of recovery after the twister on May 22, 2011, carved a six-mile swath of destruction in the city of about 50,000, he said.
Joplin joins U.S. cities selling munis to recover from natural disasters amid the longest tax-free rally in two decades. Long Beach, New York, is seeking permission to issue deficit-financing bonds to mend its finances after Hurricane Sandy hit in October. New Jersey Shore towns approved short-term borrowing last year for Sandy costs. Even with the disaster, the Joplin district’s yield penalty shrank 56 percent from July.
While some individual investors may have gotten “spooked” by the Joplin damage, “for us, that’s where the opportunities sometimes lie,” said Paul Brennan, who helps manage $95 billion in Chicago at Nuveen Asset Management, which bought some of the school bonds.
The school district of Joplin, in southwest Missouri, sold $27 million of tax-exempt debt April 30 after issuing $35 million in July. In last month’s sale, bonds due in March 2032 were priced to yield 2.9 percent, or about 0.25 percentage point above benchmark munis, data compiled by Bloomberg show. In July, a segment with the same maturity yielded 3.2 percent, a spread of about 0.57 percentage point.
The $3.7 trillion municipal market is on pace for a 10th-straight quarterly gain, the longest streak since 1993, Bank of America Merrill Lynch data show.
Proceeds from Joplin’s sale came on top of $35.4 million in estimated federal and state disaster-relief funding, $85.9 million from an estimated insurance settlement and $1.7 million in donations for rebuilding, data from the district show.
The twister, with winds exceeding 200 miles (322 kilometers) per hour, was the deadliest single U.S. tornado since 1953. It leveled more than 4,000 homes and 531 businesses, according to the city.
The Missouri Department of Insurance expects losses from the storm to top $2 billion, Chris Cline, a spokesman, said in an e-mail. As of Oct. 31, companies had paid $1.65 billion on 19,870 claims, according to data from the department.
The tornado destroyed or damaged 10 of Joplin’s 20 school buildings, including its high school, the district said. Officials immediately vowed to open classes on time in temporary spaces that August, and voters approved the largest bond issue in city history in April 2012, Barr said.
While Joplin could have rebuilt the schools to their previous standards, it constructed larger, more advanced facilities, Barr said.
“We’re leading the recovery,” Barr said in a telephone interview. “You do have to, in the face of adversity and tragedy, look for a silver lining and make the best of an opportunity that you didn’t ask for.”
The district is spending about $200 million on construction and repairs, Barr said. Two elementary buildings and a middle school are to open in December, and a combined high school and vocational technology center should be ready by August 2014, the district said.
Because the bond proceeds weren’t needed all at once, the district saved about $1 million in interest by selling in two stages, Barr said.
The total interest cost for the 2012 sale was 3.39 percent, compared with 3.53 percent for the April sale, Greg Bricker, executive vice president of underwriter George K. Baum & Co., said from Kansas City.
Standard & Poor’s assigned an A+ rating to the bonds and a AA+ long-term rating reflecting the district’s participation in a Missouri direct-deposit program. State aid is transferred to a trustee, who pays the bondholders.
State Farm Mutual Automobile Insurance Co., the largest U.S. home and car insurer, bought the bonds. The Bloomington, Illinois-based company made the purchase in part because it is the largest insurer in Joplin and wanted to support the recovery, said Jim Camoriano, a spokesman. The insurer, with $7.6 billion in assets under management, has almost 2 million policies in Missouri.
“We want to invest where it makes sense, but our return is not simply dollars and cents,” Camoriano said. “Our return is to see the community return.”
Besides the school rebuilding, Mercy health-care system, the city’s third-largest employer, with about 1,800 workers, is constructing a $450 million hospital to replace one destroyed by the tornado, said a spokeswoman, Angie Saporito.
The site, expected to open in March 2015 and funded with capital reserves, debt and donations, will feature windows capable of withstanding winds of 250 miles per hour, Saporito said.
The new schools and hospital should attract professionals and families, said Crystal Harrington, executive officer of the Home Builders Association of Southwest Missouri.
City Manager Mark Rohr, who wrote a book called “Joplin: The Miracle of the Human Spirit,” estimated the city is about 80 percent recovered. The focus now is on a rebuilding plan that includes planting 25,000 trees, and a five-year goal of reversing an estimated population loss of about 5.8 percent since the storm.
“It was a horrific thing that happened to us, but when you lose one-third of your city and you build it back, that one-third of the city is virtually brand new,” Rohr said by phone. “I call it the defining moment in our lives, whether we like it or not.”
Elsewhere in the local-debt market, issuers plan to offer about $6.5 billion in debt this week, less than the weekly average of $6.9 billion for 2013.
New York City, which suffered billions of dollars of damage from Sandy, is set to lead issuers next week with an $800 million general-obligation sale, its biggest borrowing this year. The refunding debt will be offered to individuals for two days starting May 20.
The ratio of the two interest rates, a gauge of relative value between the asset classes, is about 91 percent, the lowest since March 11. The lower the figure, the more expensive local-government bonds are when compared with federal securities. The ratio has averaged 92 percent since 2001.
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