Lubbock's $86M Debt Sales Will Finance Capital Plan

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DALLAS -Lubbock, Tex., will pay for a long and wide-ranging list of capital improvements with the proceeds from next week's negotiated sale of $2.1 million of general obligation bonds and $84.5 million of tax and waterworks surplus revenue certificates of obligation.

The GO bonds are the fifth tranche from $30 million of GO bonds approved by voters in 2004. There are $14.6 million of authorized by unissued bonds remaining from the 2004 election.

The GO bonds are supported by the city's property tax of 45.5 cents per $100 of taxable assessed value. Property tax revenues are also pledged to the support of the certificates of obligation. However, most of that debt service will be met with revenues from Lubbock's water, wastewater, and electric utility operations, said Andy Burcham, director of fiscal policy and strategic planning for the city.

Most of the GO bond proceeds are dedicated to street improvement projects, Burcham said, but the proceeds from the sale of the certificates of obligation will finance a number of projects in the city's capital improvement program.

"Those projects are all over the place," he said. "Basically, with this sale we are financing the capital improvements that are in this year's city budget.

"We usually do one large debt sale a year, and this is it."

Underwriters on the Lubbock transaction include Morgan Stanley, Banc of America Securities LLC, Merrill Lynch & Co., and Morgan Keegan & Co.

Bond counsel is Vinson & Elkins LLP. The financial adviser is RBC Capital Markets.

Lubbock's GOs and COs are rated Aa3 by Moody's Investors Service andAA by Fitch Ratings. Standard & Poor's raised its rating on the city's debt from AA to AA-plus.

Theodore Chapman, an analyst with Standard & Poor's office in Dallas, said the upgrade was due to Lubbock's role as a regional economic center and the city council's willingness to raise utility rates when necessary.

"The upgrade is based on the continued improvement in the city's financial position, including restoration and maintenance of very strong reserve levels, a stable tax rate, and structural balance while the utilities continue to support their allocable share of tax-secured debt," he said.

Burcham said the city and the financial adviser are currently evaluating bids for bond insurance.

"We're looking at the cost and the need for bond insurance," he said. "We were very happy to get the news about the Standard & Poor's upgrade, because it should make that decision easier."

In addition to the road work financed with the GO bond proceeds, the sale will provide $20.5 million to replace some older water pipelines in the downtown area, $21 million for new streets in new residential developments, and $6.7 million for electrical distribution lines.

The proceeds also include $9.6 million for work in the main terminal at the Lubbock International Airport, Burcham said.

"Most of this is 20-year debt, but not for the airport work," he said. "We have about $5.5 million of that maturing in seven years and $4.1 million in five years."

With slightly more than 215,000 residents, Lubbock is the 11th largest city in Texas. Total taxable assessed value is $10.9 billion, up from $7.3 billion in 2003.

 

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