San Antonio ISD Saves More Than 18% in Refunding

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DALLAS – San Antonio Independent School District plans to close on $123.7 million of bonds June 9 after achieving present value savings of more than 18% on the $45.65 million refunding portion of the deal.

The bonds priced May 19 through negotiation with book-runner JPMorgan led by vice president Pedro Ramos.

The deal was the district's first with Frost Bank as financial advisor, according to Lisa Pepi, director of cash and treasury management for the district.

The transaction was also the third in which business students from Sidney Lanier Business and Banking Magnet School were guided through the process, Pepi said.

"The financial advisors and the senior underwriter described the transaction from as basic a level as describing the value of a basis point to naturally progress to the point of walking the students through the logistics of the order period and the different types of municipal bond investors," Pepi said.

The teacher Alfred Lasoya worked the pricing into his curriculum, Pepi said.

Potential turmoil in the market added an element of drama, according to financial advisor Victor Quiroga, senior vice president for capital markets at Frost.

"In the weeks prior to pricing, the municipal bond market was in great shape as money had consistently flowed into bond funds and the Fed Funds futures market had priced out the implied odds of any more rate hikes this year," Quiroga said.

"But as we began pre-marketing on Wednesday [May 18], the FOMC [Federal Open Market Committee of the Federal Reserve] minutes from the April 26-27 meeting were released and showed most Fed members saw a June hike as likely," he said.

"This surprised the market and created a volatile environment that forced spreads to AAA MMD [Municipal Market Data's yield curve] to widen a few basis points," Quiroga said. "It also brought us 6 basis point cuts in AAA MMD in the 10 to 30 year part of the curve as munis responded to a bad day in the Treasury market."

The bonds carry underlying ratings of Aa2 from Moody's Investors Service and AA from Fitch Ratings. With backing from the Texas Permanent School Fund, the enhanced rating was triple-A.

On the long end, maturities of 2046 with 4% coupons earned a yield of 3.519%.

"On our day of pricing we took a flexible marketing approach as to coupons and terms to accommodate investors in a way to offset their volatility concerns," Quiroga said. "We believe this approach was successful."

On the $45.65 million refunding tranche, the district earned savings of 18.348% net present value or $8.38 million, he said.

"For comparison, the District refunded $239.68 million par amount in the spring of 2015 and saved $34.74 million or 14.496% of refunded par," Quiroga said.

With district bond data stretching back to 1916, Pepi said it would take some research to discover whether the interest savings set a record in percentage terms.

In addition to the refunding, proceeds will take out commercial paper and cover projects approved by voters in 2010.

As the third largest school district in Bexar County, SAISD serves a population of 306,943 and enrolls 56,063 students.

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