PHOENIX, Ariz. -- Competition between Arizona and Florida cities over Major League Baseball teams' spring training business is proving a boon for investors in the $3.7 trillion municipal-bond market.
Mesa, the southwest state's third-largest city, sold $94 million of tax-exempt debt last week. Most of the proceeds will go to build a stadium for the Chicago Cubs to keep them from moving their annual preseason camp, which they've held in Arizona since 1952. Mesa, which may cut services and leave jobs unfilled to close a budget gap of about $8 million for fiscal 2014, risked losing the Cactus League team to Florida, said City Manager Chris Brady. MLB's regular season started this week.
Demand was so strong that the city lowered yields during the sale, said Larry Given, Mesa's financial
adviser at Wedbush Securities. Resulting yields still eclipsed those on similarly rated debt. Investors betting interest rates are set to rise were drawn by call dates that may return the cash as soon as 2017, said Michael Hamilton, who runs about $345 million of Arizona muni funds at Nuveen Investments in Portland, Oregon.
The early call is "very popular for people right now who want to deal with money in three years when yields might be higher," said Hamilton, who bought some of the issue. "It's a defensive bond," he said of the segment callable in 2017.
Mesa joins cities nationwide that have taken on debt for sports facilities or other commercial ventures to boost their economies. The moves don't always pay off. In the case of Camelback Ranch, the preseason home built by Glendale, Ariz., for baseball's Los Angeles Dodgers and Chicago White Sox, development expected around the stadium hasn't materialized.
Mesa, a municipality of 447,000 about 20 miles east of Phoenix, is also using some bond funds to refit a stadium for the Oakland Athletics so the team can move its spring operations from the state capital.
There are 15 teams in the Arizona spring league, with the remainder in Florida. Training typically starts in February and winds down about six weeks later, though some facilities remain in use for minor-league play.
The Mesa bonds are backed by excise taxes including city sales levies. Mesa plans to sell 11,000 acres of farmland it bought three decades ago for water rights it no longer needs. It would repay debtholders with the proceeds, which is why it used the early call structure. It expects to receive more than $100 million for the land, according to Brady.
Debt maturing in July 2027 and callable in July 2017 was priced to yield about 1.6 percentage points more than benchmark bonds, data compiled by Bloomberg show. Yields were more than double those on like-rated general obligations. Moody's Investors Service grades the bonds Aa3, fourth-highest.
With the U.S. economy showing signs of strengthening amid a housing rebound, investors are speculating interest rates will rise. Ten-year Treasury yields will climb about 0.7 percentage point to 2.5 percent in a year.