By Gayl Mileszko
Market Commentary
Summer School
School is out for the year in many parts of the country, and students are now whooping it up at summer camps and on long-planned family vacations. Some schools in the Northeast and Pacific Northwest are still in session and the kids as well as the teachers are counting the days and hours until they are free for a few joyous weeks of holiday before summer school or fall classes begin. But at several charter schools, the boards and staff are still hard at work preparing for the bellringing in August and scoping out plans for the many academic years to follow. They are huddled with their bankers on exciting acquisition, construction, improvement, renovation, and refinancing projects, happy to spend time learning about all the ways they can bring their hopes and dreams to fruition and set their schools on new pathways to even greater success.
Schools Rule
HJ Sims has been working with the dedicated teams at dozens of charter schools, and we are proud to feature three that are in the municipal bond market this week:
.• We are bringing an $18.5 million transaction for Crescent City Schools in New Orleans, a network with a focus on preparing students for high school and college and educating economically disadvantaged and high-need populations. Their four campuses serve 2,700 PreK-8 students and have an operating history dating back to 2011. The BBB-minus rated bonds are being issued through the Louisiana Public Facilities Authority and are structured with a final maturity in 2066.
• Our firm is also offering $119 million of non-rated bonds for Jackson Day School in Charlotte, a K-12 public charter school with 920 students that opened in 2009 as a private school and converted in 2018. The school offers hybrid learning options and dual enrollment partnerships with local colleges and has a wait list of 1,401. Bonds have a 40-year final maturity and are being issued through the Public Finance Authority.
• We have also finalized an $18.2 million transaction for TLC Academy, a network of K-12 public charter schools in Texas focused on leadership and character development, serving over 3,500 students in San Angelo, Midland, Abilene, Arlington, and Cedar Hill. The BB+ financing is structured with 4 term bonds and has a final maturity in 2056 priced at 6.00% to yield 6.125%.
School’s In For Summer
Among other charter school transactions on this week’s $12 billion slate of negotiated municipal bond offerings, the Public Finance Authority also has a $51 million issue for SLAM Academy of Nevada, a K-12 charter school with 1,971 students that opened in 2016; the BB+ rated bonds will assist in financing the cost of acquisition of its leased facilities in Henderson. The Bucks County Industrial Development Authority is bringing an $11.1 million BBB rated deal for School Lane Charter School; bond proceeds will renovate and expand the campus in Bensalem, Pennsylvania. And the Delaware Economic Development Authority features a $17.3 million BB rated issue for Las Americas ASPIRA Academy in Newark, a K-12 charter school opened in 2011 planning to use bond proceeds to expand and improve its campus. Last week, the Arizona Industrial Development Authority sold $31.6 million of BB+ rated bonds for Academies of Math & Science, the Colorado Educational and Cultural Facilities Authority issued $17.8 million of Aa3 rated insured bonds for Firestone Charter Academy. The South Carolina Jobs Economic Development Authority had a $20.3 million non-rated offering for Harrisburg Global Academy. And the Utah Charter School Authority brought two AA rated state-enhanced financings: $17.6 million for George Washington Academy, and $78 million for Syracuse Arts Academy.
No Senior Left Behind
At HJ Sims we are working with dozens of boards of non-profit and for-profit senior living communities on bond and bank financings tailored to meet their specific needs. We also follow, trade in and report on municipal bonds offered in this sector. This week, the primary market includes a $306 million non-rated Virginia Small Business Authority limited offering of sustainable bonds for Caring Forever Obligated Group; a $127 million non-rated Montana Facility Finance Authority issue for expansion, renovation, and refinancing projects in Billings and Laurel for St. John’s Lutheran Ministries; and a $48.7 million non-rated transaction for Presbyterian Homes Norris Square coming through the City of St. Paul Park, Minnesota. Last week, the Virginia Small Business Financing Authority issued $140.2 million of BBB rated bonds for Lifespire of Virginia; the final maturity in 2056 was priced with a coupon of 5.25% to yield 5.06%.
The SpaceX Classroom
The corporate bond market saw $44 billion of new issue sales in the two days ahead of Federal Reserve Chair Kevin Warsh’s first press conference. This included a $25 billion 7-year note deal for Nvidia that received $85 billion of orders. Amazingly, this did not smash any records. The world is still reeling from the big smash last Friday when SpaceX went public. Since then, its stock price has jumped by almost half adding more than $870 billion to its market capitalization, ousting Amazon from its position as the 5th largest company in the world. It has been an amazing, unprecedented event, particularly because Elon Musk said that he thought SpaceX had only a 10% chance of succeeding. It is hard to visualize, to comprehend, what having a trillion dollars means, never mind $1.27 trillion and counting. But Elon Musk is the first to know. One thousand billion. He and his heirs can spend $1 million a day, and it would take them 2,740 years to spend the whole wad. If he cashed out, he could fix all of U.S. public housing needs, pay for 10 years of universal pre-school, house the American homeless, and end world hunger by 2030, and still be crazy rich.
The Blackboard
Since our founding in 1935, we have made and seen big headlines but nothing in our memory compares to the Space X IPO. We can only wonder about the next major public offerings from OpenAI and Anthropic but for now, everything in the bond world has been relegated to the back pages where only savvy borrowers and income investors pay attention. Few have remarked on the results of the new settlement rules for the 20-year Treasury bond auctions. Futures trading now reflects increasing odds of a rate hike in September, and a high likelihood by October, but this is all buried under the spotlight. Nevertheless, companies, municipalities and non-profits are still coming to market to take advantage of the favorable rates available while meeting their backlogged needs for capital. Buyers sitting on more than $7 trillion in money market funds may be uncertain, fearful of bubbles and recession but hungry for steady income -generating options, many of which may be available via essential needs public purpose financings, Investors understand that costs have increased and that every new issue is coming to market under headlines reflecting a world in turmoil, one that is rapidly evolving, and expanding far beyond Earth. We all seek stories and credits that resonate, that make sense and, in many cases, minimize risk. For investors across tax brackets, municipal bonds offer a very attractive solution.
Testing and Competitions
The G7 has been meeting in France where world leaders have discussed the new extended ceasefire in Iran and the nuclear details to be worked out, the war in Ukraine now well into its 4th year, the global debt situation, the race to dominate artificial intelligence, the need to access rare minerals, and all that is needed to defend western democracies. Public and private meetings took place overseas as athletes from around the world have come to North America to compete for the FIFA World Cup. In a highly unusual spectacle on the White House grounds on Sunday, President Trump’s 80th birthday, fourteen mixed martial art fighters competed. All of a sudden, we seem to be dealing with unprecedented events on regular basis. New stock market highs. Primary upsets. Major Supreme Court rulings. A new Fed chair and a Governor who may or not be fired for cause. Will anything ever be “normal” again?
Sharing Lessons from History
Fortunately, there is something normal, reliable, and constant here in the U.S. where we are celebrating our 250th anniversary. In the midst of the current IPO frenzy, we tend to forget the significant role that bonds have had throughout our history. Back in 1776, the Continental Congress had no power to levy taxes but sorely needed funds to finance the Revolutionary War. So, the Congress, along with several individual states, issued $27 million of debt certificates and interest-bearing securities to citizens who wholeheartedly believed in America and trusted that the debts would be honored. At the time, these bonds paid about 6 percent interest. It took a while but our first Treasury Secretary, Alexander Hamilton, later nationalized and paid off that debt, pledging the new nation’s full faith and credit, a pledge that holds to this day.
Municipal Bonds as the Backbone of US Infrastructure
Municipal bonds have been one constant, the backbone of infrastructure finance in America since at least 1812 when New York City raised capital for the construction of the Erie Canal. During the Civil War, the U.S. Treasury saw how effective it was to sell person-to-person. That changed trading practices forever. During the Spanish American War, the Treasury found how attractive small denominations were. Amid all this change, there is a veritable bond issuing spree on the part of our federal government, so many of our companies, and borrowers in the tax-exempt marketplace.
HJ Sims for Guidance
HJ Sims was founded in 1935, and our teams have guided our clients through more than nine decades of change. Today, markets are moving at a fast pace to 24/7 trading, to automated execution, to blockchain tokenization, to new digitalization, credit risk modeling, and algorithmic pricing. You can use our seasoned guides to help you traipse through the investment terrain. Please reach out to your HJ Sims representative this week. Our markets are closed on Friday for the federal holiday, but we look forward to exchanging views on market and sector outlooks this week and next and helping to guide all your market-entry options.