DALLAS — Houston on Tuesday priced $259 million of hotel occupancy-tax revenue bonds to refund variable-rate debt and a 2001 issue that carried Ambac Assurance Corp. insurance.
The serial bonds maturing through 2033 were issued as $119.2 million of Series A and $140.2 million of Series B.
Series A maturities of 2033 and coupons of 5% offered a yield of 5.24%. Series B bonds, with the same maturities and coupons of 5.12% had yields of 5.36%.
The negotiated deal was led by book-runner Piper Jaffray & Co. . Co-managers were Bank of America Merrill Lynch, Hutchinson, Shockey, Erley & Co., Estrada Hinojosa & Co., Mesirow Financial Inc., and Raymond James & Associates Inc.
First Southwest Co. and TKG & Associates were financial advisers. Andrews Kurth and Escamilla Poneck & Cruz were co-bond counsel.
The refunding bonds carried ratings of A-minus from Standard & Poor’s and A2 from Moody’s Investors Service, both with stable outlooks.
Fitch Ratings did not rate the new issue.
Proceeds will refinance $75 million of auction-rate bonds as fixed-rate debt and restructure $163 million of 2001 Series A and B bonds for net present-value savings and cash for the debt service reserve.
Boosting the reserve fund will supplant coverage on the refunded bonds that was provided by Ambac. The insurance carrier lost its investment-grade ratings from Moody’s on Nov. 29, 2010, and from Standard & Poor’s this past April 10.
“Upon issuance of the bonds, the debt service reserve fund will be fully funded with cash and investments in an amount equal to the reserve fund requirement for all parity bonds,” the preliminary official statement said.
The pledged revenue includes 5.65% of the city’s 7% hotel occupancy tax at all city hotels, parking revenues at six downtown city-owned facilities, and a 10-year tax rebate package.
The $75 million of Series 2001C bonds were to be auctioned weekly. The auctions have failed since the collapse of the ARS market in 2008.
Over the last 18 months, the auction rate has averaged 0.42%, well below the five-year average of 1.85%.
In 2008, Houston officials were considering a sale of a city-owned hotel to a private operator to defease the debt. With the economy improving, the hotel is no longer on the market.
