DALLAS – San Antonio and Bexar County, who partner on several major projects in the Alamo City, plan to issue a combined $553 million of general obligation bonds in two separate deals this week.
San Antonio expects to issue about $125.6 million in new money bonds with $77.6 million of refunding for a combined $203.2 million on Tuesday. The San Antonio City Council authorized up to $215 million in this week’s issue, according to city finance director Troy Elliott.
“The refunding transaction is projected to produce total savings of approximately $6.7 million and net present value savings of $6.1 million or 8.72% of the refunded obligations,” Elliott said.
The city also plans to issue about $16.3 million of combination tax and revenue certificates of obligation for the city’s LED Streetlights Project and a new fire station. The council authorized up to $25 million in this deal.
“The differential is due to the potential issuance of the 2013 certificates at a premium which will be dependent upon market conditions and determined at the time of sale,” Elliott said.
Despite a weakening muni bond market, San Antonio expects a good reception in the market due to the triple-A ratings from all three ratings agencies, Elliott said.
The senior manager and book runner on San Antonio’s deal is Wells Fargo Bank, with RBC Capital Markets as co-senior manager. Co managers are Piper Jaffray & Co., Rice Securities, Samuel A. Ramirez & Co., and Southwestern Capital Markets.
Coastal Securities is financial advisor, with Fulbright & Jaworski LLP and Bickerstaff Heath Delgado Acosta LLP as co-bond counsel.
Delivery and closing of the 2013 bonds is set for Aug. 13.
Jorge Rodriguez, managing director at Coastal, said the fact that the county and city were coming to market the same week was “purely coincidence.”
“Both are strong credits and both should be well received,” Rodriguez said.
San Antonio’s new money issues will go toward typical city infrastructure such as streets and drainage, public safety and libraries.
Bexar County, for which San Antonio is the seat of government, is planning its own issue of $350 million of certificates of obligation Thursday through negotiation with senior managers Loop Capital Markets and M.R. Beal. Co-managers are Citi, Cabrera Frost and Siebert Brandford & Shank.
Duane Westerman at Samco at Samco Capital Markets and Mark Seal at M.E. Allison share duties as the county’s financial advisors.
“I would expect with our rating we would see strong demand,” said Seth McCabe, director of management and finance for the county. “Normally, we’ve seen good demand for our bonds. We’ve been working very closely with some members of the syndicate to let investors know we’re coming to market.”
McCabe said the fact that both the county and the city are issuing at the same time should not be a factor in the pricing.
“Obviously the market’s been in flux, so we’re not too concerned about them going to market at the same time,” McCabe said. “We’re more concerned about the market itself.”
This week, Ipreo LLC and The Bond Buyer estimated that $9.65 billion of new volume will be priced, up from a revised $5.38 billion that actually came last week, according to Thomson Reuters.
The big issue this week also comes from Texas, with nearly $3 from the Grand Parkway Transportation Corporation.
The Bexar County certificates are rated triple-A by Fitch Ratings and Moody’s Investors Service but carry a negative outlook from Moody’s. Standard & Poor’s rates the county a notch lower than San Antonio’s general obligation debt at AA-plus with a stable outlook.
Moody’s attributes the county’s negative outlook to its heavy reliance on the federal government, which is also on review for downgrade. Standard & Poor’s already factored that into its rating with a downgrade of the United States in 2010.
“Moody’s has determined that issuers with indirect linkages, such as Bexar County, have some combination of economies that are highly dependent on federal employment and spending, a significant healthcare presence in their economies, have direct healthcare operations, and/or high levels of short-term and puttable debt,” Moody’s analyst Kristin Button explained.
San Antonio accounts for 1.3 million of Bexar County’s 1.7 million population. While San Antonio is the state’s second-largest city, Bexar County is the state’s fourth most populous.
Both the county and the city benefit from four large military installations, including Ft. Sam Houston Army Post and Lackland Air Force Base. The military delivers an annual economic impact of more than $13 billion, according to analysts.
“Fitch views such military reliance cautiously, although the county has benefitted substantially from recent realignment and base closure decisions,” wrote Fitch analyst Jose Acosta. “Relative to the larger economy, the projected impact of federal sequestration on civilian military employment is modest. However, the impact of sequestration on military contracts with the area’s defense industry is still unfolding.”
Bexar County and San Antonio share responsibility for the San Antonio River Walk, a major tourist draw that weaves through the Alamo City, including the convention center and was recently extended to reach the city zoo and museums to the north and the mission district to the south. Both the city and the county have issued bonds for flood control along the river.
Downtown redevelopment efforts include multifamily housing and mixed-use development projects and redevelopment of the HemisFair Park area, the site of the 1968 World’s Fair. The Hemisfair project includes redesigned park space mixed-use development. The city is also in the process of undergoing a major expansion of its convention center, which is expected to be completed by spring 2016.
Growing industries in the city and county include financial services, information technology, health care, bioscience and manufacturing.
The most recent economic driver for the city and county has been the booming energy production from the Eagle Ford Shale to the south of the city. The shale area, using new techniques of hydraulic fracturing, is producing both oil and gas, prompting an influx of investment in the area.
To serve the rapidly growing production of energy, the railroads have also expanded in the region with future investment going toward pipelines and potential exports of energy through the ports in Corpus Christi and Houston.
Activity in the Eagle Ford Shale is expected to have a $61 billion impact over the next 10 years, according to a study by the University of Texas at San Antonio. More than 20,000 jobs in the area have already been attributed to the Eagle Ford Shale.
Aside from the surge of oil and gas production, several existing companies within the county have plans for expansion, such as USAA, an insurance company serving the military, which announced earlier this year that it planned to add about 1,000 new jobs. Maruchan, an American producer of products such as ramen noodles, is in the process of building a noodle factory in the county that is expected to create about 500 new jobs. Toyota Motors operates a major truck manufacturing plant in the area.
According to the Federal Reserve Bank of Dallas, the San Antonio metropolitan area had an unemployment rate of 6.3% as of April 2013, which was below both the state’s and national rates of 6.4% and 7.5%, respectively.
Another factor analysts consider favorable is a 1.6% increase in the city’s taxable assessed valuation in fiscal year 2013 to approximately $71.8 billion.
Per capita effective buying income is 81% of the national average, according to analysts.
San Antonio’s city-owned CPS Energy electric utility is expected to account for about 29% of total general fund revenues in fiscal year 2013.
“While the utility has moved into a deregulated environment, we believe that its favorable and competitive position mitigates the risks with the city’s dependence on these transfers,” wrote S&P analyst Lauren H. Spalten.
“We do not expect to change the ratings within the next two years given the continued diversification of the city’s economic and employment base, coupled with management’s strong financial management practices,” she added.
