Municipal-bond investors are trading a record amount of debt from Napa County, California, in a sign that some may be concerned about damage from the strongest earthquake to hit the wine-growing area in 25 years.
County certificates of participation that mature from June 2015 to June 2020 all changed hands this week, data compiled by Bloomberg show. The 2016 and 2017 bonds traded Aug. 25, the day after the quake, for the first time since they were issued in May 2012. A $1.1 million block of the 2020 debt traded the same day, an unprecedented size for the securities, the data show.
The magnitude 6 temblor crumpled historic buildings, caused fires, cracked roads and injured more than 200 people. California Governor Jerry Brown declared a state of emergency because of damage and aftershocks in Napa and neighboring Solano and Sonoma counties. Napa County’s debt certificates are tied to property it leases, including a now-damaged courthouse, offering documents show.
The bond trades are probably “in direct response to the earthquake,” Kelly Wine, a senior trader at RH Investment Corp. in Encino, California, said by e-mail.
The lease payments that back the securities “will be subject to abatement during any period in which by reason of damage or destruction there is substantial interference with the use and occupancy by the county of the leased property,” according to offering documents for the refinancing.
Lease Payments
Even though some of the leased facilities experienced “significant damage,” bondholders won’t lose out on payments, according to an e-mailed statement from Leanne Link, the assistant county executive officer.
“Regardless of the damage to any of the leased properties, the county intends, and has sufficient resources, to continue to appropriate and pay its upcoming lease payments in their entirety and without interruption,” according to the statement.
Proceeds from the initial deal in 1993 funded construction such as work on a library, fire station and jail, offering documents show. The county makes lease payments to the Napa County Public Improvement Corp.
The documents also specify that “the county is under no obligation to provide insurance against loss or damage occasioned by the perils of earthquake or flood.”
Napa County certificates of participation that mature in June 2015 traded today for the first time since January, Bloomberg data show. The debt changed hands at about 101.9 cents on the dollar, down from 103.3 cents on Jan. 24.