County misses out on municipal bond market surge.

But City of L.A. and transit agency get in on the boom

Although record amounts of municipal bond issues were offered nationwide in June and the first half of July, demand was so strong that interest rates on bonds have continued to sink to new lows.

Experts noted that the huge volume had not pushed bond interest rates higher because investors were snapping them up in anticipation of higher taxes and fewer alternative tax shelters. The bond market weakened last week, but that was seen as a temporary correction since no real inflationary pressures were discernible.

While L.A. county has been dragging its heels during the upsurge, the City of Los Angeles and the county's transit agency have taken advantage of the boom.

According to Securities Data Corp. information service, close to $40 billion worth of municipal bonds were issued between June 1 and July 15, up 17 percent from $34 billion for the like period last year. Refinancings accounted for the bulk of the new issues. A record $24 billion in outstanding debt was replaced during these six weeks vs. $16 billion during the like period in 1992.

Bargain low interest rates provided part of the rationale for refunding. The rush to refinance has also been accelerated by new IRS rulings which will limit refinancing options. According to Dean Weiner, partner and tax expert at law firm O'Melveney & Myers, after Aug. 15 it will be harder to issue bonds that have longer maturities than the bonds they are replacing.

For these reasons, municipal bond traders and analysts said they believe the bulk of this year's issues -- certainly the refinancings -- has already been offered. However, noted Franklin Advisors' portfolio manager Bernie Schroer, "if interest rates fall, you could easily get $10 billion worth of bonds (offered) in the next two weeks."

California Municipal Statistics indicated that, to date, Los Angeles County has issued about $258 million worth of bonds this year. The bonds were sold to fund projects such as parking facilities for the new Disney concert hall in downtown L.A.

Cities and various municipal agencies within L.A. County have added another $3.3 billion to countywide bond offerings in 1993.

These statistics are in line with the California Debt Advisory Commission numbers for all municipal governments and agencies within the county in 1992. In 1992, the county as a whole issued over $7 billion in bonds and interim financing issues. Los Angeles County itself issued $1.72 billion of the total.

The calendar for future L.A. County issues awaits passage of a new county budget, which is currently being debated in public hearings. Assuming a budget is approved this week, the county's debt manager, Sharon Yonashiro, said, "I imagine it will be the end of the summer until we're ready" to offer the next round of bond issues.

Gerry Miller, finance specialist with the City of Los Angeles' Debt Finance Group, said the city could issue up to $935 million in bonds in the near term. Up to $700 million of that amount awaits final approval by the City Council's Finance Committee later this week. So far this year, the City of L.A. has issued $570 million in bonds, almost 40 percent of which was issued in June.

Les Porter, deputy executive director for the Metropolitan Transportation Authority, said he expects the MTA will issue another $310 million in bonds between now and November to cover its Gateway headquarters and Green Line projects. The first is contingent upon the findings of a Goldman Sachs study to determine the best strategy for the financing, the second rests upon the approval of a capital budget by the MTA board, which is expected by July 28.

The MTA's 1993 bond offerings so far have consisted of two major refundings. In June, $204 million of the $560 million in outstanding bonds backed by the Proposition C 1990 sales tax initiative were refinanced to obtain lower interest rates, yielding a savings of more than $8 million. In April, the MTA refinanced $560 million of the $1.7 billion in bonds outstanding under Proposition A (1980's sales tax initiative), saving taxpayers $18 million, according to Porter.

When evaluating the county's prospects for future financing, Joseph Rosenblum, director of municipal credit research at New York-based money manager Sanford C. Bernstein & Co., said the amount of debt in question is not the primary concern. What counts, he said, is the issuer's financial performance.

Rosenblum noted that his firm has avoided investing in most tax-supported local government debt due to uncertainties over future tax revenues. In fact, he added, when assessing tax revenue bonds, "pressures there (in L.A.) are greater than in most counties."

Rosenblum said his firm prefers bonds that are backed by fee revenues (like utility offerings), pre-refunded (collateralized) bonds or bonds insured by a municipal bond insurer. L.A. County insured its bonds as recently as last year.