PHILADELPHIA – The City of Philadelphia issued its first Social Bond through the Philadelphia Redevelopment Authority, demonstrating the City’s continued commitment to social justice and equity. On October 13, the City successfully priced $100 million in bonds for the first transaction under the Neighborhood Preservation Initiative (NPI), which was announced by City Council earlier this year. The Social Bonds designation demonstrates the importance the City places on addressing disparities through the NPI program and appeals to the growing investor appetite for projects that address socioeconomic issues like poverty, inequality, and racial disparities.
“This is a major step forward to addressing growing economic disparities and creating a more equitable future for all Philadelphians,” said Mayor Jim Kenney.
Over the life of the program, NPI will provide up to $400 million for citywide investments in affordable housing programs, support for first time homebuyers, eviction prevention efforts, neighborhood infrastructure repairs, and commercial corridor and small business revitalization in communities across Philadelphia.
“The fact that investors are so interested in purchasing bonds for the first phase of our Neighborhood Preservation Initiative is very positive news,” said City Council President Darrell L. Clarke, who conceived of the NPI program, along with Council leaders and city housing officials. “Investing $400 million in programs that will provide more affordable housing, help people repair and stay in their existing homes, restore and revive neighborhood business corridors, and so many other improvements is the right thing to do for Philadelphia, and it’s clear that the investment community and bond markets feel the same way. Let’s get shovels in the ground and get started.”
“The programs these bonds fund will support will benefit every neighborhood in Philadelphia,” said Anne Fadullon, Deputy Mayor for Planning and Development. “Homeowners, renters, seniors, and people with disabilities are among those whose housing options will increase under NPI and this bond issuance.”
The transaction included $89 million of taxable bonds (Series 2021A) and $11.5 million of tax-exempt bonds (Series 2021B). The City earned strong market reception, with over $265 million in total orders (2.7 times oversubscription) from 26 institutional investors and 4 individuals. Of these institutional investors, 13 did not previously report holding the City’s General Fund-supported bonds, including a designated social investor that placed a $5 million order. This strong demand helped reduce the borrowing’s interest rates, saving the City approximately $650,000 in interest costs compared to pre-pricing estimates. On the tax-exempt portion of the borrowing, the City was able to achieve spreads to MMD, the industry accepted tax-exempt benchmark, which were 0.10 percent – 0.12 percent less than for comparable maturities on its General Obligation Bonds sold earlier this year. The total interest cost for the 20-year borrowing was 2.87 percent.
“We are excited and proud to issue our first Social Bond to showcase the important work of our colleagues and achieve the most competitive interest rates possible for the City,” stated City Treasurer Jacqueline Dunn.
Ahead of the sale, Moody’s Investors Service, S&P Global Ratings, and Fitch Ratings maintained their respective ratings of ‘A2’, ‘A’, and ‘A-’ on the City of Philadelphia’s GO and General Fund-Supported Bonds. Each of the ratings has a Stable outlook.
In recent rating reports, all three agencies cited the City’s sound financial management, continued progress on pension funding, strong and diverse economy, and expectation of solid revenue growth post-pandemic. All of the agencies cautioned, however, that despite its pre-pandemic growth, Philadelphia’s fund balance still lags behind its peers and the City needs to return to structural balance within the current Five Year Plan.
The 2021A&B Bonds were sold by an underwriting syndicate led by Siebert Williams Shank & Co, with PNC Capital Markets serving as co-senior manager. Acacia Financial Group and PFM Financial Advisors LLC served as financial advisors on the transaction. The sale is scheduled to close on October 29, 2021.