Norfolk, Virginia, has recently made the decision to cancel its plans to call some of its outstanding Build America Bonds (BABs). The city had initially issued a conditional notice in March regarding the possible redemption of $56 million of its direct-pay taxable 2010B capital improvement BABs. However, according to a financial filing issued on Monday, Norfolk has now opted not to proceed with the redemption of these bonds, much to the surprise of the investment community. This unexpected move has raised questions about the future of Norfolk’s bond issuance plans and has created uncertainty in the market.
The decision by Norfolk to cancel its BABs redemption has caught many analysts off guard. While the city did not provide a specific reason for this change of plans, it has reserved the right to call the 2010B BABs for redemption in the future. Analysts have noted that several other issuers have been redeeming their outstanding taxable BABs using similar extraordinary redemption provisions. In fact, J.P. Morgan highlighted in a recent report that multiple issuers across the United States have either called, posted conditional calls, or announced plans to finance their outstanding BABs. This trend indicates a larger movement within the municipal bond market towards refinancing and restructuring existing debt obligations.
Despite Norfolk’s decision to cancel its BABs redemption, other issuers have been actively engaging in similar transactions. For instance, the Kentucky State Property and Buildings Commission recently priced $685.3 million of bonds to refund all of its outstanding BABs. Additionally, the Hampton Roads Sanitation District in Virginia has posted a conditional call notice for $99 million of BABs, while the Sacramento Municipal Utility District has completed the redemption of $200 million of its BABs. These ongoing refunding activities reflect a broader movement in the municipal bond market towards taking advantage of current interest rates and addressing investor concerns.
The cancellation and redemption of BABs have not been without challenges from investors. Earlier this year, investor lawsuits were threatened against issuers who proceeded with the redemption of their outstanding BABs. The Regents of the University of California faced such threats when they closed a deal to redeem their BABs despite investor opposition. Similarly, the Maryland Transportation Authority encountered investor pushback when they called their $721 million of BABs, leading to concerns about legal action and financial repercussions. These instances highlight the complexities and risks associated with managing BABs and responding to investor demands in the municipal bond market.
The decision by Norfolk to cancel its BABs redemption has broader implications for the city’s financial standing and reputation among investors. The lack of transparency regarding the reasons behind this cancellation raises concerns about Norfolk’s ability to honor its financial commitments and communicate effectively with stakeholders. Additionally, the uncertainty created by this move may impact future bond issuances by the city and its ability to attract investors in the municipal bond market. Moving forward, Norfolk will need to address these challenges proactively and rebuild confidence among investors to ensure financial stability and growth in the long term.