Houston Saves $116.7M on Utility Refunding

houpub.jpg

DALLAS – Houston achieved net preset value interest savings of $116.7 million Tuesday after enlarging a combined new money and refunding issue to $957 million, officials said.

The preliminary official statement for the Combined Utility System bonds listed the sale amount at $800 million. However, the city council authorized up to $960 million of bonds.

With favorable market conditions, the city earned a true interest cost of 3.26% on bonds maturing from 2016 to 2045, according to Jennifer Olenick, deputy director of finance for the city.

"Portions of the deal were oversubscribed, with the most significant of that occurring in the early maturities, before the call date," Olenick said.

With ratings of Aa2 from Moody's Investors Service and AA from Fitch Ratings, the 2016B bonds were priced to yield 0.34% on a 3% coupon in 2016, and 3.30% with a 4% coupon in 2040.

A 2045 term bond was priced as 4s to yield 3.38%.

Bonds maturing in 2026 with 5% coupons yield of 1.95%, a spread of 21 basis points over 10-year Treasuries.

Houston has sold about $13 billion of debt in the past 10 years, with the largest issuances coming in 2011 and 2014 when it offered $2.1 billion and $2.5 billion, respectively.

This week's deal priced through book runner Wells Fargo Securities and five co-managers. Wells Fargo Vice President John Young and director Desrye Morgan were lead bankers. Trey Cash, managing director at First Southwest Co., is financial advisor.

In April 2010, the city council adopted a rate ordinance resulting in an average rate increase of more than 20% for retail customers of the Combined Utility System. The new rate ordinance also altered the automatic rate adjustments. Future adjustments are tied to changes in the producer price index versus the consumer price index.

The Combined Utility System serves the Houston-Sugar Land-Baytown metropolitan statistical area, the sixth largest in the U.S. and second largest in Texas, with an estimated population of 6.3 million. The system provides water to wholesale users in neighboring communities, through a vast network of reservoirs, pipes and treatment facilities. Lakes Houston, Conroe and Livingston are the major sources of surface water.

For reprint and licensing requests for this article, click here.
Texas
MORE FROM BOND BUYER