Unrated bonds latest to fund growth of Florida's Villages

[Altavia]

Financial Article describing the complexities behind the financial mechanics for a recent issue of Bonds by CDD15

Unrated bonds latest to fund growth of Florida's Villages (https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202408290757SM______BNDBUYER_0000 0191-9971-df42-a9b5-dd7318410001_110.1)

The tax-exempt bond-funded march of the Villages retirement development in Florida continues next week with an unrated $163 million land development bond.

Senior manager Jefferies and co-manager Morgan Stanley (MS) tentatively plan to price the deal Sept. 10 for The Village Community Development District No. 15 (City of Wildwood, Florida) special assessment revenue bonds, series 2024.

It will fund infrastructure construction for a phase II residential part of District 15, one of 21 community development districts that have been used to build the age-restricted development to more than 76,000 homes and 146,000 residents, according to an online investor presentation for the deal. All households are required to have at least one person over 55 and no households can have residents under 19.

...

The bonds are being sold with a minimum denomination of $100,000 and are being offered only to "accredited investors" under the rules of the Florida Department of Financial Services, according to the preliminary limited offering memorandum.
However, this does not restrict who buys the bonds or the bond sizes on the secondary market, the PLOM said.

[jimhoward]

I wonder how much they will yield?

[Stu from NYC]

Wonder why they are not rated?

[jimhoward]

Wonder why they are not rated?

My bet is that they figure they can sell them more advantageously in a private offering without the expense of getting them rated. ....but just a guess.

[Stu from NYC]

My bet is that they figure they can sell them more advantageously in a private offering without the expense of getting them rated. ....but just a guess.

Do not understand why anyone would buy a bond that has not been vetted by a rating agency

[Altavia]

My bet is that they figure they can sell them more advantageously in a private offering without the expense of getting them rated. ....but just a guess.

Correct

Demystifying Non-Rated Bonds (https://blog.intrepidcapitalfunds.com/advisor-insights/demystifying-non-rated-bonds?hs_amp=true)

We believe one of the most common reasons is that the company didn’t want to pay for a rating. Yes, rating agencies charge a fee to research a company’s creditworthiness, write a report, and stamp the bond with a letter of the alphabet and their implied “seal of approval.”

...

Unrated Does Not Equal a “Red Flag” 

As always, it depends.

If a company chooses not to pay for a rating because it either can’t afford one or it doesn’t want a third-party research firm bringing investor attention to its challenges, those are, of course, factors to be concerned about.

But in our work in this niche, we have discovered many other reasons that companies choose not to pay for credit ratings – none of which we would put in the “red flag” category. Some common examples:

They already have relationships with lenders who understand their business well so they don’t need the rating

The cost of the rating is unreasonably high versus the amount of capital they are trying to raise

They believe the rating agencies focus too much on characteristics unrelated to creditworthiness, such as sustainability or promoting social justice

They operate in a small, niche industry that the rating agencies do not cover well and, as a result, have mis-rated the company’s securities in the past

They have a small finance department and do not have the time or the desire for regular meetings and reporting to ratings agencies in addition to their investors and Board of Directors

To us, these reasons are not “red flags.”

]In fact, one can argue that management teams and Boards that thoughtfully decide not to pursue ratings are demonstrating signs of financial strength and/or prudence.

They simply don’t believe they need one to raise capital or they conclude that the potential benefits of a rating would not justify the cost.

Either of these decisions reflect qualities we like to see—quite the opposite of a red flag.