DALLAS — The Houston Independent School District plans to offer $14.5 million of public-property finance contractual obligations in a competitive sale Thursday.
The state’s largest school district sells similar contractual obligations each year for school equipment, and the debt isn’t subject to voter approval but is limited to shorter maturities.
The Series 2008 obligations mature in 2010, 2011, and 2012, and are secured by a limited ad valorem tax pledge. The debt isn’t eligible to be wrapped with Texas’ triple-A rated Permanent School Fund, as only voter-approved bonds can receive the credit enhancement. Yields on $23.5 million of public property finance contractual obligations sold competitively last October ranged from 3.44% with a 4% coupon in 2009 to 3.83% with a 4% coupon in 2015.
First Southwest Co. and Rice Financial Products Co. are co-financial advisers to the district, while Andrews Kurth and Burney & Foreman are co-bond counsel.
HISD has $405 million of authorized but unissued bonds remaining from a November 2007 bond package of $805 million to fund construction of 24 new schools and renovations to 134 more. Officials scrapped a planned three-cent tax increase that would’ve been included in last year’s referendum, citing higher-than-expected estimates from the Harris County appraisal district on tax revenue gains.
“We will spend $90 million to upgrade safety and security at every school, and we will build science labs in every middle and high school. And we can do all of this without a tax rate increase,” superintendent Abelardo Saavedra said ahead of the vote.
Terrell Palmer, senior vice president at First Southwest, said the district initially expected to get the rest of the authorization to market early next year. But now it looks like the bonds won’t price until mid- to late-2009, as the construction schedule just wasn’t able to accommodate a sale in the first few months of the year.
The bonds represent the third and final phase of HISD’s capital improvement plan to renovate facilities and adjust them to meet the demands of declining enrollment trends, according to analysts.
The district is the eighth-largest school system in the country with about 200,000 students in more than 300 schools. Enrollment has fallen by about 2% annually the past couple years, after a slight increase in 2005 due to an influx of students that were displaced by Hurricane Katrina.
HISD sold all of the $808.6 million of bonds approved by voters in November 2002, as well as another $678 million from a 1999 authorization. The district built 41 new schools and renovated more than 100 with proceeds from those authorizations, and has about $2.3 billion of debt outstanding.
The Houston ISD carries underlying ratings of AA-plus from Standard & Poor’s and Aa2 from Moody’s Investors Service.
Ahead of a March sale, Standard & Poor’s upgraded its rating on the district, citing continued property-tax base expansion and “a consistent trend of positive operating results that has nearly doubled reserves over the past five years.”
Palmer said he hopes the upgrade results in a lower interest rate for the school district. He added that he doesn’t expect there to will be another issuer in the market Thursday with a higher Standard & Poor’s rating than HISD.
Analysts said the district’s fiscal 2008 taxable assessed valuation of $97 billion is up 25% over the past two years. And three consecutive years of operating surpluses have led to an unreserved general-fund balance of $430.9 million.
The population of Houston, which is projected at nearly 2.4 million, has swollen of late adding more than 500,000 new residents since 2004.
