RICHMOND -- After months of delay, the city's successor to the now-defunct redevelopment agency refinanced $27.6 million in bonds last week, averting what could have been steep losses because of investor skittishness over the city's plan to use eminent domain to seize underwater mortgages.
"This morning's sale was a success for Richmond and comes on the heels of the city's credit rating having been upgraded to AA-," Finance Manager James Goins wrote in an email to City Manager Bill Lindsay on Thursday. "Investor perception of the city has turned around to a large extent. And the last seven months of work on this transaction has paid off."
The bond sale follows months of work by city officials and Stifel, Nicolaus & Co., the bond underwriter the city hired after its bonds were snubbed by the market in August. The snub was attributed to the Richmond CARES program, a hotly debated plan to seize underwater mortgages to keep beleaguered homeowners in their homes.
Richmond's decision in July to consider becoming the first city in the country to use eminent domain in this fashion apparently prompted investors to shun the city's bonds one month later. The city continues to develop a strategy with its investment partner, Mortgage Resolution Partners, to seize and refinance mortgages at current market value, but the odds of getting a supermajority of council votes to implement such a plan appear remote.
"Investors don't like risk," Goins said in an interview. "So the firm we hired put a lot of time and training into their sales people and did a good job of explaining the CARES program."
The "penalty" resulting from Richmond CARES was not entirely eliminated but was far less than early estimates, Goins said.
James Cervantes of Stifel, Nicolaus & Co. said the penalty for Richmond CARES could be as much as $85,000 in present value over 11 years, based on comparisons with similar bonds floated by Lafayette, which has a slightly higher bond rating than Richmond. Goins added there has been some additional staff time required to refinance the bonds but estimated it amounts to less than $100,000.
Those losses are countered by the savings of about $330,000, according to Goins' email, thanks to improved bond market conditions now compared with last August and reduced concern about the eminent domain plan.
Mayor Gayle McLaughlin, a proponent of the eminent domain plan, welcomed the news, noting the city's bond rating was recently upgraded and investors flocked to the new bonds.
Some local leaders still want to pull the plug on the eminent domain plan. No other cities have pledged to join Richmond.
Councilman Tom Butt put an item on Tuesday's City Council agenda calling for the city to terminate its contract with MRP but pulled the item hours later, saying the biggest reason was that MRP agreed to waive a clause in the contract requiring 60 days notice before July 21, the anniversary of the contract's creation.
Butt said about two dozen members of the Alliance of Californians for Community Empowerment, critics of the banking industry and proponents of using eminent domain to seize mortgages, came to his office in Point Richmond on Friday after word spread that he might try to pull the plug on the program.
"I told them I pulled the item off the agenda, so they left," Butt said.