Independent School District No. 318 (Grand Rapids)
Accelerated pricing helps navigate changing market conditions
Background
Independent School District No. 318 (Grand Rapids) is located in Itasca County in northern Minnesota and serves approximately 3,800 students. The District came to market with $11.1 million of General Obligation Facilities Maintenance Bonds, Series 2026A, to finance long-term facilities maintenance projects, including roof and indoor air quality improvements. The bonds received an A- underlying rating from S&P and an AAA enhanced rating through the Minnesota School District Credit Enhancement Program.
Implementation & Solution
Baird served as sole managing underwriter on the financing. Following an extremely volatile September, rates in the tax-exempt market showed greater stability, with rate reductions each day from September 30 through October 2. Although the bonds were originally scheduled to price on October 7, Baird worked with the District to accelerate pricing to October 5 in hopes of leveraging the recent market momentum.
Despite Treasury rates increasing, the tax-exempt market remained stable during the morning pricing period and there was good investor demand for the District’s bonds. As pricing wrapped up, however, the tone of the market shifted and rates on the longer end of the yield curve began moving higher.
Demand was particularly strong in the longer maturities, with subscription levels reaching 4.1x in 2039, 5.0x in 2040, 6.9x in 2041 and 7.9x in 2042. The order book allowed for pricing improvements in several maturities, including a 10-basis-point reduction in the 2042 yield from 5.08% at preliminary pricing to 4.98% at final pricing.
Results & Impact
The final $11.1 million financing was structured over 15 years, with $9.975 million allocated to the roof portion and $1.125 million to the indoor air quality portion. The transaction had a true interest cost of 5.14% and a final maturity in 2042.
Moving the pricing date ahead positioned the District to enter the market following several days of declining tax-exempt rates and before conditions weakened later in the pricing day. Investor demand also allowed borrowing rates to be lowered from preliminary pricing across portions of the issue.
