Jacksonville set to sell $290M deal as measly supply awaits bond buyers

In a week where big municipal bond sales are as rare as hen's teeth, one deal stands out: Jacksonville, Florida, is set to hit the market with $290 million of tax-exempts.

Senior manager Raymond James & Associates is set to price the city's $290.345 million of revenue and revenue refunding bonds on Tuesday, weather permitting.

The deal consists of $259.495 million of Series 2023A special revenue and refunding bonds and $30.85 million of Series 2023B special revenue refunding bonds.

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Proceeds of Series 2023A will go toward financing some of the acquisition and construction of certain capital equipment and improvements, refunding outstanding Series 2013A special revenue refunding bonds and refinancing outstanding commercial paper notes.

Proceeds of the Series 2023B will go toward refunding outstanding Series 2013C special revenue refunding bonds.

Co-managers include BofA Securities, Citigroup and Ramirez & Co. The financial advisor is PFM and Greenberg Traurig is the bond counsel.

The Series 2023A bonds are tentatively structured as serials, due Oct. 1, from 2024 to 2043 with 2048 and 2053 term bonds. The Series 2023B bonds are tentatively structured as serials running from 2024 to 2026.

The deal is rated AA by S&P Global Ratings and Kroll Bond Rating Agency and AA-minus by Fitch Ratings. All three rating agencies assign a stable outlook to the credit.

As of Sunday evening, experts say tropical storm Idalia could pose a significant threat to Florida this week. AccuWeather reports it could strengthen into a powerful hurricane over the Gulf of Mexico before making landfall somewhere along the Gulf Coast late Tuesday and pass by Jacksonville Wednesday afternoon.

Fitch said Jacksonville's issue default rating is AA and reflects the strength of the city's financial cushion and budgetary tools to address future economic downturns in addition to its track record of net surplus operating results.

Jacksonville's long-term liability burden has improved in recent years as population and personal income have gained, Fitch said, adding however, the city's unfunded pension liabilities remain a key weakness, as they are a large share of the city's resources and could create a downside risk if pension plan assumptions are not met.

"The AA-minus rating on the special revenue bonds is notched off the IDR," Fitch said. "The one-notch distinction reflects the statutory priority to the payment of essential governmental services over debt service, and the inability to compel the city to generate NAV revenues sufficient to pay debt service."

KBRA said its rating "reflects the trend of robust coverage of special revenue bond debt service from covenant revenues. Because of the nexus between general fund revenues and the sufficiency of covenant revenues to pay special revenue bond debt service, the rating also derives from the city's overall financial condition, which is characterized by solid revenue performance, strong reserves, and ample liquidity.

"Debt-reduction measures are beginning to have a favorable impact on the city's fixed cost burden and pension reforms implemented over the last eight years are expected to result in reductions to the net pension liability beginning in fiscal 2027," KBRA added.

Jacksonville is the most populous city in Florida and anchors the northeast Florida economy. Between 2000 and 2022 the city's population increased 18.2% to 971,319, complementing favorable labor and housing market metrics, according to Fitch.

While the city's employment base is less highly concentrated in tourism than in other areas on the East Coast of the state, it has a strong federal government representation since several U.S. Navy air stations are based in the area.

The median household income in the city tracks closely to that of the state, which boasted a low 2.7% unemployment rate as of last month.

In July, the Jacksonville metro area added 31,100 private-sector jobs, a rise of 4.5% on the year. The Jacksonville area total labor force increased by 43,297 jobs, or 5.2%, in July from the same month last year.

The area's unemployment rate was 3.2% in July, up 0.2 percentage point from the July 2022 rate of 3.0%.

The Jacksonville area in July led all the other metro areas in the state in over-the-year job gains in the areas of financial activities and manufacturing. The industries seeing the most job gains on the year were professional and business services and leisure and hospitality.

Last year, Moody's Investors Service raised the issuer rating on Jacksonville to Aa2 from Aa3, citing "the ongoing expansion of the city's tax base and economy, which is notably more diverse than most of Florida and outperformed peers during the pandemic."

Other deals coming from Sunshine State issuers on Tuesday include Lakeland's $155 million of tax-exempt energy system revenue and refunding bonds, rated AA by S&P and Fitch, and Brevard County's $50 million of solid waste management system revenue bonds, rated A1 by Moody's and AA-plus by S&P.