Regional News

Texas Water Board Set to Make a Splash With $125 Million of GOs

DALLAS — Texas will pump about $125 million of highly rated general obligation bonds into the market next week as the state pools funds for water development loans.

The bonds will be sold in two series, E and F, on Tuesday via negotiation. Morgan Keegan & Co. is senior manager with Citi, Fidelity Capital Markets, Loop Capital Markets, Southwest Securities and Ramirez & Co. as co-managers.

First Southwest Co. serves as financial adviser, with McCall, Parkhurst & Horton as bond counsel.

Issued by the Texas Water Development Board, the bonds carry the state’s GO rating of AA-plus from Fitch Ratings and Standard & Poor’s and Aa1 from Moody’s Investors Service.

Both series are fixed rate. The $94.2 million Series E for the Water Infrastructure Fund reaches final maturity in 2029. The $25 million Series F for the Economically Distressed Areas Program has annual maturities through 2026.

The Series F bonds represent the first issuance under a constitutional amendment authorized by voters in 2007 that set the bond limit for EDAP at $250 million.

The new authorization also made EDAP a statewide program rather than one that served primarily the colonias on the Mexican border.

Colonias are unincorporated settlements of impoverished people lacking in water and sewer services.

With the upcoming issue, the TWDB will issue that last $12 million of authorized debt from the previous program, with the rest coming from the new ­authorization.

The Series E bonds are issued under a 1997 constitutional amendment that consolidated various authorizations of the water development board. 

Funds from the program support water conservation and infrastructure projects around the state.

The water financial assistance program is generally self-supporting from repayment of loans made to local water utilities, but the state also pledges its general fund as backup. Hence, the bonds carry the state’s GO rating.

The TWDB has $1.7 billion of authorized but unissued GO bonds, according to Standard & Poor’s.

The agency wields great economic power in a state that is racing to provide water for an ever-growing population.

Lawmakers created the Water Infrastructure Fund in 2001 to conserve, pipe or develop water sources through zero-interest loans to local providers.

In evaluating the new bonds, analysts considered the state’s economy, which has withstood the recession better than most.

“The state’s economic forecast through fiscal 2011 anticipates sharp slowing in employment and personal income gains in fiscal 2009 and 2010, even as the state continues to outperform comparable national metrics,” observed Fitch analysts Douglas Offerman and Ken Weinstein.

However, the state’s aversion to debt is reflected in its low $450 per capita debt ratio, analysts said. The state has $11.1 billion of GO bonds outstanding, of which $8.4 billion are self-­supporting.

Debt pressures are coming mainly from transportation, with $5 billion of GO bonds issued in recent years for highway projects.

Moody’s analysts Maria Coritsidis and Edith Behr identified the state’s growing poverty, reliance on federal stimulus funds to balance the budget, and changes in school finance as potential destabilizing factors.

“Tax changes enacted as part of a school finance and property tax relief plan ... will further undermine ability to maintain structural budget balances,” the Moody’s analysts wrote.

Moody’s assigns a stable outlook for Texas.



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