San Francisco Muni P3 bonds land in a receptive market

Bonds sold to build a new bus yard for the San Francisco Municipal Transportation Agency drew interest from roughly 75 investors across the muni market spectrum on a deal brought a day early.

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The California Municipal Finance Authority, a conduit, sold $735.54 million in tax exempt bonds on Wednesday to support SFMTA’s first public-private partnership project.

The financing will fund the construction and furnishing of a state-of-the-art, four-story Potrero Yard bus facility and operational hub for SFMTA to replace its 111-year-old service yard.

The finance team had said ahead of the deal it might accelerate pricing to Wednesday, rather than hitting the market Thursday, depending on market conditions.

The decision to “accelerate was two-fold – both strong market conditions and our aim all along had been to preserve as much flexibility as possible given recent volatility,” said Julie Burger, co-head of public finance investment banking at Wells Fargo, lead manager of the deal.

Municipal bonds were in early trading Wednesday after a ceasefire was reported in the war against Iran.

The ICE AAA yield curve and Bloomberg BVAL was bumped 8 to 10 basis points at 12:45 p.m. EST.

The deal came in at $485.54 million on the 2026 Series A revenue bonds, slightly less than the $492.6 million projected on the preliminary offering statement, according to LSEG. The $250 million 2026 Series B milestone bonds priced at the amount listed on the POS with the same maturity and two-year call, but saw a 5 bp improvement on yield, Burger said.

“It was a great reception by investors,” Burger said. “I think it had more to do with the credit than the market, including the Plenary name, the SFMTA name, and the project itself.”

Pricing exceeded expectations in terms of the number of investors and final spreads, she said.

“The market reacted well,” Burger said. “It was the opportunity to do something different in California. I think people understood the rationale for the P3. That helped support great pricing.”

The yields ultimately lowered after the reprice based on demand with the deal coming as much as 5 to 20 basis points lower in different maturities, Burger said. 

Burger called the investor response a “who’s who of buyers in the muni market” with mutual funds, exchange-traded funds, separately managed accounts and insurance companies in the mix.

“There was good demand across the whole curve, though the longest maturities attracted the most interest,” Burger said. “The longer maturities appeal to folks who want to have long-term exposure to the project and obtain the maximum yield possible on the financing.”

Jefferies was co-manager of the deal. Financial advisors were Sierra Management Group for CFMA and Arup for SFMTA. Orrick, Herrington & Sutcliffe was bond counsel.

The debt issued through CMFA will be repaid by the Potrero Neighborhood Collective LLC, owned by Plenary Americas, which is responsible for the development, design, construction and financing of the project.