DALLAS — After pricing $347 million of general obligation bonds for expansion of state facilities Monday, Texas is preparing another $300 million of taxable debt for its Cancer Prevention Research Institute next week.
Monday’s negotiated deal led by Siebert Brandford Shank & Co. offered yields of 4.2% on 4% coupons maturing in 2031. The bonds carried triple-A ratings from Moody’s Investors Service and Fitch Ratings. Standard & Poor’s rated the debt AA-plus.
“We’re not finished with the pricing yet but it’s going well,” said Susan Durso, interim executive director of the Texas Public Finance Authority. “So far so good.” She is filling in for former executive director Dwight Burns, who left the agency July 6 for a job in private industry. The state will conduct a search for a successor, Durso said.
Outlooks on state debt rest on an uncertain foundation, given the possibility for a downgrade of U.S. Treasury debt from triple-A if Congress refuses to raise the debt ceiling and forces a default.
“We will review all Aaa-rated municipal issuers in the states sector during the week of July 18 to determine whether their ratings should also go on review for possible downgrade in light of the sovereign rating action,” Moody’s announced in a special report Monday. “Any review for downgrade of Texas rating will be announced at that time.”
Despite that caveat, the outlook on Texas debt remained stable Monday.
Monday’s tax-exempt bonds will finance projects for the Texas Department of Criminal Justice, the Department of State Health Service, the Department of State Health Services, the Texas Facilities Commission, and the Texas School for the Blind and Visually Impaired.
Coastal Securities is serving as financial adviser on this week’s and next week’s deals. RBC Capital Markets was senior co-manager, while Vinson & Elkins served as bond counsel.
Next week’s taxable issue is the first long-term debt issued for the cancer institute, which was created through voter approval of a constitutional amendment in 2007. The ballot issue, promoted heavily by Gov. Rick Perry, authorized the state to issue $3 billion in bonds to fund cancer research and services in Texas.
The Cancer Prevention Research Institute of Texas’ goal is to expedite innovation and commercialization in the area of cancer research and to improve access to evidence-based prevention programs and services throughout the state.
Tuesday’s bonds will take out commercial paper issued through the program.
Jefferies & Co. is senior manager with seven co-managers.
The potential private applications of inventions or processes from the CPRIT program required that next week’s issue be taxable, according to Durso.
Ratings analysts see Texas’ low per-capita tax load of $612 as commendable as other states face a national median of $1,066. Texas ranks 39th in the country in per-capita debt. The Texas Bond Review Board reported recently that the state’ debt from 2001 to 2010 climbed from $13.4 billion to $37.8 billion, a rise of 281%. That’s a faster rate than the federal debt’s increase of 234% during the same period.
To overcome an estimated $24 billion budget shortfall, Texas legislators made deep cuts to education and other programs while refusing to raise taxes.
“We do not consider all of the expenditure measures adopted by the Legislature as long-term solutions to the state’s budget,” said Standard & Poor’s analyst Horacio Aldrete-Sanchez.
“The measures adopted by the Legislature include the postponement of $2.3 billion corresponding to the August 2013 payment to the school foundation program, the exclusion of approximately $4 billion in Medicaid-related expenses for fiscal 2013 associated with anticipated growth in case load, and the use of $3.2 billion of the approximately $9.4 billion accumulated rainy-day fund to balance the budget for the current biennium.”