DALLAS — The Texas market this week expects to see a restructuring of auction-rate debt issued by the Dallas-Fort Worth International Airport, two school district deals that have been on the calendar in recent weeks, and another issue that’s been held up by a lawsuit.
The nation’s third-busiest airport plans to convert about $337.1 million of auction-rate bonds to fixed-rate debt through a negotiated sale set to price Tuesday.
Bear, Stearns & Co. is lead book-runner for the deal with M.R. Beal & Co. as co-senior manager.
DFW vice president of treasury management Michael Phemister said the airport received a guarantee from JPMorgan Chase & Co. in regard to Bear Stearns’ ability to handle the sale. JPMorgan with assistance from the Federal Reserve acquired Bear last week after the investment bank collapsed, in part due to too much exposure to subprime mortgage securities.
He said the fixed-rate bonds will come with an 18-month call and officials are confident the deal will be well received in the market this week.
“DFW is a good underlying credit, and while we may pay a higher interest rate than normally, it looks like we may have timed it right by selling [this] week,” Phemister said.
McCall, Parkhurst & Horton LLP and Vinson & Elkins LLP are co-bond counsel to the airport. First Southwest Co. and Estrada Hinojosa & Co. are co-financial advisers.
DFW Airport carries underlying ratings of A-plus from Standard & Poor’s and AA-minus from Fitch Ratings. Moody’s Investors Service rates the credit at A3.
Phemister said the auction-rate debt worked very well for the airport, saving about $40 million in interest costs since 2002, but continued turmoil in the market necessitated the remarketing of the bonds to fixed-rate debt.
“We gave ourselves this option in the original covenants for the debt,” he said.
The sale includes six series of bonds and each series will keep the insurance it had from the original issuance of the debt. Five of the series are wrapped with the triple-A insurance of MBIA Insurance Corp., and the $56.4 million of Series 2003C-2 joint revenue bonds will remain insured by XL Capital Assurance Inc., which is currently rated A-minus by Standard & Poor’s and Fitch, and A3 by Moody’s.
Elsewhere, the Waller Independent School District may finally come to market with $49.3 million of unlimited-tax school building bonds this week after the Texas Supreme Court rejected an appeal by plaintiffs in a suit against the ISD. The exact timing of the issue is still unclear as officials were trying to gauge the market late last week.
The lawsuit alleged the district violated open-meeting laws prior to an election last May and claimed distribution of bond proceeds was racially biased. It held up the sale for several months. Following the high court ruling, the state attorney general signed off on the deal, freeing it to come to market.
The suburban district about 45 miles northwest of downtown Houston plans to build a new elementary school and $17 million football stadium with proceeds from the debt, which will be backed by the state’s the triple-A rated Permanent School Fund.
First Southwest is the sole underwriter for the deal and RBC Capital Markets is the district’s financial adviser. Vinson & Elkins is bond counsel.
Waller ISD serves about 5,100 students at seven campuses.
Two other school districts continue to try and price debt in the volatile market.
Friendswood Independent School District and La Porte Independent School District are on the schedule again this week.
Friendswood wants to issue $99.5 million of unlimited-tax schoolhouse bonds and exhaust the entire authorization approved by voters in November. The bonds will be backed by the PSF.
UBS Securities LLC is lead manager for the negotiated sale. The underwriting syndicate includes RBC, Southwest Securities Inc., Edward Jones, Wachovia Bank NA, and Coastal Securities Inc.
First Southwest is the financial adviser to the district and Vinson & Elkins serves as bond counsel.
The bonds come market following an upgrade of the underlying credit of the suburban district about 23 miles south of downtown Houston to A-plus from A from Standard & Poor’s.
Analysts said the upgrade reflects the district’s “significantly improved financial position and steady property tax base growth.” The higher rating also applies to about $22 million of debt outstanding.
Friendswood ISD’s primarily residential tax base averaged 10% annual growth the past five years to $1.96 billion for fiscal 2008, according to analysts, who expect the assessed value to continue to growth at a similar pace.
Moody’s assigned its A1 underlying rating to the sale, and Fitch doesn’t rate the credit.
La Porte ISD expects to offer $65 million of unlimited-tax school building bonds at some point this week through a negotiated sale also led by UBS. First Southwest, Morgan Keegan & Co., and Banc of America Securities are co-managers.
RBC is the financial adviser to the district on the Galveston Bay about 25 miles southeast of Houston. Vinson & Elkins LLP serves as bond counsel.
Enrollment at the district’s schools has been relatively steady the past decade or so between 7,400 and 7,900 students. But officials project a student population between 8,700 and 9,700 by 2011.
Moody’s assigned its Aa3 rating to the sale, citing the district’s large and highly industrial tax base.
The bonds will not be backed by the state’s PSF enhancement due to the level of debt per student exceeding the maximum under the program, according to analysts.
Standard & Poor’s assigned a AA underlying rating to the sale and affirmed the rating on the district’s roughly $173 million of debt outstanding, including this week’s issue.
In the competitive market this week, Fort Bend County Water Control & Improvement District No. 2 plans to offer $25.7 million of unlimited-tax bonds Wednesday.
RBC is the financial adviser to the district, and Vinson & Elkins serves as bond counsel. Both firms also advise the Clear Lake Water Authority, which expects to price $8.7 million of waterworks and sewer system combination unlimited-tax and revenue bonds competitively Thursday.
Snook Independent School District is bringing $9.7 million of unlimited-tax school building bonds to the competitive market Wednesday, as well. Coastal Securities is the financial adviser to the small central Texas district.
The bonds will be backed by the state’s triple-A rated Permanent School Fund.
Officials plan to use most of the proceeds to replace a 52-year-old wing on the high school, another wing on the elementary school that’s 42 years old, and replace a gym, kitchen, and cafeteria.
