DALLAS - A year after Hurricane Ike slammed into the Gulf Coast, Galveston County, Tex., is in the market this week with three tranches of general obligation debt worth about $135 million to continue the rebuilding process.
The county will take advantage of the federal subsidy provided through the Build America Bonds program, with most of the bonds expected to be issued as direct-pay BABs. Issuers of BABs, which were introduced earlier this year as part of the federal stimulus package, can receive a 35% subsidy from the Treasury Department on their interest costs.
The county is offering $75 million of unlimited-tax road bonds in two series, $45 million of limited-tax county building bonds in two series, and $15 million of limited-tax flood control bonds in two series.
Coastal Securities Inc. is lead underwriter for the negotiated sales with Hutchinson, Shockey, Erley & Co. and SAMCO Capital Markets Inc. as co-managers. Louis Pauls & Co. is financial adviser to the county and Andrews Kurth LLP is bond counsel.
Louis Pauls, president of his eponymous firm based in Galveston, said the sale was expected to be completed Wednesday afternoon. Results weren't available by press time.
Pauls said BABs have been well received by the market and provide a real value for issuers.
"We're always looking for a better interest cost for issuers," he said. "And when you're looking at a 6% rate on a deal and then you take that 35% off ... you're ending up with rates of less than 4%."
Pauls said the Galveston County issue includes some short-term, tax-exempt debt in the flood-control Series 2009C bonds that could attract retail investment.
"But the big institutional buyers are going for the BABs," he said. All the BABs, which won't be insured, are structured as serials maturing in 2010 through 2039.
This sale exhausts the entire bond package approved by county voters in November. Proceeds will fund numerous road projects, reconstruction of some county offices and courts, and improvements to the seawall and other flooding and drainage facilities.
Fitch Ratings assigned a AA rating and stable outlook to the bonds, citing the county's "solid financial profile with healthy reserves, which has been critical" since the hurricane hit on Sept. 13 of last year.
Analysts said the prompt response of state and federal agencies in the wake of the storm helped keep the county's liquidity and cash flow strong.
"While post-hurricane economic prospects appeared uncertain following the storm, particularly for Galveston Island, recent announcements on the reconstruction of two large hospitals on the island have brightened the area economic outlook considerably," according to Fitch.
Moody's Investors Service assigned its Aa2 rating to each tranche and affirmed the rating on $361 million of debt outstanding, including the current issue.
Analysts said the county's fiscal 2010 tax base fell 8.4% from a year earlier to $18.6 billion, after average annual increases of 8.8% the previous five years.
In addition to the losses directly stemming from the hurricane, the county was hurt further by lower valuations in the petrochemical industry tied largely to lower oil prices, according to analysts.
Moody's said: "Damage sustained following the storm within the city of Galveston and the Bolivar Peninsula resulted in roughly $900 million in lost value."
It is estimated that about 75% of the homes and businesses on the island city of Galveston flooded during the Category 2 storm, which eroded shorelines and heavily damaged the mainland all the way to Houston 50 miles inland.
Most of the structures on Bolivar Peninsula, which is across the mouth of Galveston Bay from the city, were completely washed away.
The Census Bureau estimates about 288,000 people lived in the county in 2008, but some reports have shown one-third of the population left following Ike.
