DALLAS – The Texas Veterans Land Board hit the market Wednesday with $250 million of variable-rate bonds that carried a double-barreled pledge and top ratings.
The tax-exempt debt was expected to be swallowed up quickly by a hungry market startled by a selloff in stocks and focused on the short-end of the yield curve.
"It's going to be pretty well received," said Rusty Martin, chief investment officer for the board. "A lot of short-term paper has come out of the market recently, and there's not much with a seven-day floating rate."
As the initial rate was being set about mid-day, stocks and oil futures were in freefall as investors fled for safer investments. Yields on 10-year Treasuries fell 9 basis points to 1.96%, the lowest level since April.
Martin said the upheaval "doesn't have much of an impact other than it siphons down into the lives of the potential borrowers."
The bond sale, the only one scheduled this year by the board, provides funds for loans on houses for military veterans.
"We're limited by federal tax laws to no more than $250 million per year," Martin said.
Veterans are a particularly reliable category of borrowers, Martin said. Default and foreclosure rates are less than 1% among the board's customers.
The bonds are backed by the state's triple-A general obligation pledge as well as mortgage revenues.
"The long-term rating reflects the strong fundamentals of the Texas economy; a rainy day fund that provides a healthy budgetary cushion; and low bonded debt levels," said Moody's Investors Service analyst Nicholas Samuels.
"Those strengths are offset by low oil prices that have slowed revenues considerably, above-average pension liabilities and ongoing structural pressure to balance the state's finances as it seeks to maintain education and property tax relief spending amid high population growth," Samuels added.
The deal was led by Charles Goodwin, first vice president at Bank of New York Mellon Capital.
Gary Machak, executive vice president and manager of the Texas Public Finance Group for George K. Baum & Co., is the board's financial advisor.
Landesbank Hessen Thringen Girozentrale is the liquidity provider for the bonds.
In December 2015, the board converted about $781 million of variable-rate bonds to index-rate in a placement with Bank of America.
"The benefit for us is we eliminate need for liquidity and remarketing," Martin said. "It eliminates the need to go out every 3-5 years for new liquidity."
The Texas Veterans Land Board was created in 1946 to make land available to returning World War II veterans. VLB also owns and manages four Texas State Veterans Cemeteries and the Texas State Veterans Home Program that provides long-term care to veterans and their spouses in eight veterans' homes across the state. In the 1980s, the VLB was authorized to provide home loans to veterans, along with loans to buy land.
On Nov. 3, 2009, Texas voters approved additional funds for the bond program under a constitutional amendment known as Proposition 6.
