DALLAS — In an unusually lean market for tax-exempt debt, the San Antonio Independent School District will provide about $100 million of refunding bonds in a deal that ranks as one of the largest from Texas this year.
The negotiated deal will price Tuesday, with Loop Capital Markets as book-runner and co-senior manager with Cabrera Capital Markets. Frost Bank, First Southwest Co., Stifel Nicolaus & Co. and Bank of America Merrill Lynch are co-managers.
Escamilla Poneck & Cruz is bond counsel.
The district had planned to include a $5.3 million taxable portion in the refunding but decided to drop it due to questions about the timing of state school finance, said Steve Bassett, chief financial officer for the SAISD.
“We have decided now to just do the tax-exempt,” he said. “We felt the taxable portion was a little too complicated to accomplish in the time we had.”
Proceeds from the bonds will be used to refund portions of the Series 2001B, and Series 2005 bonds for a net present-value savings between 10% and 11%. The refunding bonds will not extend the debt’s final maturity, and most of the savings will be realized upfront within the first three years, according to analysts.
“The bonds are currently callable,” Bassett said. “Locking in current interest rates is the prudent thing to do. I see it as a win-win for everyone. We’re also structuring it so that we have more savings in the coming year.”
With maturities running from 2013 to 2029, the district expects to achieve a true interest cost of 3.97% or less.
“The underwriters have been able to generate a great deal of interest for this credit,” said Carlos Sharpless, managing director at financial adviser Sterne, Agee & Leach. “This is going to be very attractive based on the quality of the credit and the fact that there’s been a low supply in Texas.”
The bonds are expected to go primarily to institutional investors seeking the triple-A guarantee from the Texas Permanent School Fund. But the district’s underlying credit would be strong even without the enhancement.
Moody’s Investors Service confers its Aa2 rating on the credit and Fitch Ratings assigns an equivalent AA. Standard & Poor’s did not rate the deal.
“The rating assignment reflects the district’s trend of favorable financial management yielding satisfactory reserves, amidst declining enrollment, following a structural imbalance in fiscal year 2006,” Moody’s analyst Adebola Kushimo wrote. “The rating also reflects the expectation that the satisfactory reserves will be maintained, due to expenditure reduction measures, despite the challenges of anticipated state aid reductions.”
The SAISD’s most recent deal came in December with the issuance of $150 million from a $515 million bond package approved in November. The deal included about $11 million of tax-exempt Series A general obligation bonds and $139 million of taxable Build America Bonds.
The bond proposal called for renovations at 22 district schools and for other schools to receive new and upgraded playgrounds, technology, security, and facilities for career and vocational education. The district’s Alamo Stadium and Convocation Center would get $35 million of renovations.
Lying within the boundaries of the city of San Antonio, the district is one of the largest in the state but is seeing growth flatten.
Following a period of steady growth averaging 5.4% annually over the past five years, taxable value growth within the district has slowed dramatically due to challenges associated with the economic downturn, analysts note.
Along with other districts in the state, San Antonio ISD is bracing for deep funding cuts from the current legislature. A budget of $164.5 billion approved by the Texas House Appropriations Committee last week reduces spending by $23 billion, including an $8 billion reduction in funding to public schools.
“We believe the district has demonstrated solid fiscal practices by proactively identifying several expenditure reduction measures that should help alleviate the potential reduction impact,” Kushimo wrote in the rating report.
