Prince George's County schools to bring $660M of sustainable taxable bonds for P3

Prince George's County Public Schools, Maryland, is bringing more than $660 million of taxable sustainable revenue bonds that will fast-track the construction of eight new schools via a public-private partnership, coming into a constructive market in which taxable paper is in higher demand.

Wells Fargo (WFC) and TD Securities are lead underwriters of the project with Ballard Spahr serving as the bond counsel. The $663.465 million deal is expected to price Thursday via the Maryland Economic Development Corp. with Progressive Education Partners as the borrower.

"This is the second package of schools being delivered by PGCPS via a P3, though it is the first to make use of taxable municipal bonds," said Julie Burger, managing director at Wells Fargo (WFC). "Despite recent volatility, we are hopeful for very good demand, and think this project will be appealing to investors."

Plenary Americas owns half of PEP and is the developer of the project. PEP will be responsible for designing, constructing, financing, operating, and maintaining the eight schools. The project agreement extends until June 30, 2056. The design-build phase is expected to last 47 months following financial close.

"The risk profile of this project aligns well with Plenary's P3 investment criteria," said Jeff Barr, vice president for origination at Plenary Americas. "This project will have a very positive impact on the communities in which the schools are being constructed, both for faculty and staff and also through the community equity investment program that will be implemented."

The proceeds of the Series 2024 Bonds will be used to pay for a portion of the design and construction costs along with some of the interest and issuing costs.

The taxable deal will be structured to mature serially from November 2029 to 2039, with the largest tranche, $505.38 million, maturing in 2056. There is an optional make whole call.

Taxable municipal issuance has fallen in the past few years after a taxable boom in 2020 and 2021 when issuers rushed to refund outstanding debt with taxable paper after the 2017 Tax Cuts and Jobs Act ended tax-exempt advance refundings. This year, as issuers have been refunding their outstanding Build America Bonds, the overall dearth of taxable paper has made it more valuable to certain investors.

"We have made a concerted effort to target international buyers and are hopeful we may see pockets of demand from foreign buyers, including life-insurance companies," said Burger.

"The lack of taxable supply this year is helpful, but we also think investors will be excited to put money to work on a project as impactful as this," she added.

The project will build eight new schools comprising 1.03 million square feet of space with an enrolling capacity of approximately 8,150 students. The eight new buildings would replace 14 existing schools that are outdated and require modernization. The deal was approved by Prince George's County Council in July.

Payments will be made by Board of Education of Prince Georges County to the developer. Moody's has rated the deal A3 with a stable outlook.

The bonds are designated as sustainable by BTY US LLC in accordance with Green Bond and Social Bond Principals.

"The project will alleviate capacity issues, expand educational opportunities, and improve the well-being of students," said Burger.

"The developer must also meet certain defined environmental standards for the project, including achieving, at a minimum, a LEED silver designation," Burger noted. "There is also a community equity opportunity that we think is both unique and an exciting way to create a tangible, local connection to the project."

Using a P3 arrangement to build schools on an accelerated timetable is not new but Burger said
the transaction is "unique in several regards, as we think it is one of the very first bundled school, P3 projects to be financed in the municipal market."

"The project itself is one that offers a benefit to the community, and the community equity investment program is an exciting way for individuals and small businesses to participate in the project in a unique way," Burger said.. " It's an honor to get to work on projects that improve the communities we live and work in, and this project clearly does that."

Prince George's County, which borders Washington, D.C., on the east and is the second most populous county in the state, carries its own high ratings.

In May, Fitch Ratings assigned its AAA rating and stable outlook to the county's 2024A and 2024B $281.5 million general obligation bond offering.

At the time Fitch said, "The AAA IDR and GO rating reflects the county's historically strong operating performance supporting its AAA financial resilience assessment. The AAA assessment reflects a high midrange level of budgetary flexibility and Fitch's expectation that reserves will be maintained at or above 10% of spending (compared to the current 33%).