DALLAS - Four school districts in Austin and its suburbs are pouring more than $550 million of top-rated bonds into a lean primary market as students prepare to return to class.
While the underlying credit ratings of the districts vary, all earn triple-A ratings with bond guarantees from the Texas Permanent School Fund.
The Austin, Dripping Springs, Leander and Manor districts enroll a combined 134,500 students.
The smallest of the four, Dripping Springs southwest of Austin with 5,100 students, priced the largest of the bond issues, at nearly $154 million on Monday. The deal included new money approved by voters May 10 and about $71 million for refunding a 2008 issue. Raymond James is senior manager, with Specialized Public Finance Inc. as financial advisor.
Dan Wegmiller, managing director at SPF, said the district saved $10 million or about 8% on the refunding.
"It went really well," Wegmiller said. "We went out what we thought was somewhat aggressive with 4% coupons. But we were about 3.5 times oversubscribed overall."
Austin ISD, the largest district with 86,697 students, priced about $144 million Thursday with a mix of new money and refunding. Wells Fargo Securities was senior manager on the deal with First Southwest Co. as financial advisor.
"It was a choppy market," said Nicole Conley, chief financial officer for Austin Independent School District. "But things opened up. It beat our worst-case scenario."
Austin ISD drew a true interest cost of 2.76% on bonds maturing through 2034. The deal was oversubscribed up to four times on some maturities, while others were covered just one time, said Chris Allen, senior vice president for First Southwest Co.
"With the GDP numbers coming out on Wednesday, the market was off a bit," Allen said. "At the end of the day, we had a really good reception in the market. We were able to decrease yield 1 to 4 basis points."
One of the two series from Austin ISD was a $60 million refunding that produced present value savings of 7.09% or about $7 million, Allen said.
To the north of Austin ISD, Leander ISD with 34,381 students is offering $129 million through negotiation with Robert W. Baird & Co., with Southwest Securities as financial advisor.
Leon Johnson, senior vice president and managing director for Southwest Securities, said the Leander bonds would price Tuesday or Wednesday, with institutional investors expected to grab the deal. Market conditions as of Monday did not appear to be a problem, he said.
"The market is the market," he said. "You take it the way it comes."
Manor ISD northeast of Austin with 8,657 students, is issuing $125 million through negotiation with BOSC, with Specialized Financial Management as financial advisor.
Manor had been scheduled to price its bonds last week but withdrew the deal because the school board needed more time to approve the issue. The board is scheduled to approve the sale Tuesday, with pricing Wednesday.
Garry Kimball, managing director of SFM and financial advisor for Manor ISD, said he is not concerned about the heavy volume coming from neighboring districts.
"This remains a strong market in historical terms and we expect that there is sufficient overall demand to handle the current supply," he said.
A neighboring school district, Pflugerville ISD, went to market June 26 with a record $263 million of bonds approved by voters May 10. The district drew yields of 3.35% on 5% coupons maturing in 2039. The premium bonds at the long end priced at 113.45 with a yield to maturity of 4.124. The strongest demand came for 5% coupons maturing in 2024 with a price of 122.37 and a yield of 2.38%.
July was a heavy month of issuance for Texas school districts that had won voter approval for about $5.5 billion of bonds on May 10. That volume was a factor as the Austin area districts brought their August bonds to market, Wegmiller said.
"Going into this month, you're seeing different buyers look at different points," he said.
Although the PSF gives all the bonds a golden aura, the underlying districts of the Austin area are fairly strong on their own.
Manor ISD carries a rating of AA-minus from Standard & Poor's with a stable outlook. Moody's only rates the enhanced bonds. Fitch Ratings does not rate the debt.
"Despite plans to open new elementary schools in fiscal 2016 and 2017, expanded high school sections in fiscal 2017, and a middle school in fiscal 2018, the district's long-term financial plan projects that the net operational budget impact for fiscal 2016, 2017, and 2018 will be a $718,000 operational surplus, a $100,000 deficit, and a surplus of over $4 million, respectively," S&P analyst Brian Marshall noted in his ratings report.
"The positive variance is due primarily to additional Foundation School Program revenue tied to the opening of new schools. Management also projects that the district will remain well under the property wealthy designation," he added.
Dripping Springs is rated AA by S&P, and Aa2 by Moody's.
The district's growth rate of 77.7% between 2000 and 2010 explains the need to build schools. The district is also extremely affluent, with median family income running 171% of the national average. Annual enrollment grew 4.3%, on average, over the last five years to 5,107 students in fiscal 2014.
The new money portion of the current offering exhausts all of Dripping Springs ISD's $92.4 million authorization approved by voters in May.
"The district does not have any immediate debt plans in the near future, but could seek voter authorization in the next five years to issue GO bonds to construct a new elementary school," according to Moody's analyst John Nichol.
With this deal, the district has $204.2 million in total outstanding general obligation debt.
"Payout of outstanding principal is below average with 30% of principal retired in 10 years," Nichol said. "The district's debt burdens are expected to remain elevated over the medium term because of the slow principal amortization, but could moderate slightly as property values continue to increase."
The Leander district, in the booming suburbs of Williamson County, carries rating of AA-minus from S&P and covers a population 175,716, encompassing 198 square miles northwest of Austin.
The district is one of the fastest growing in the state and has experienced healthy residential and commercial growth due, in large part, to its participation in the rapidly expanding Austin MSA and the quality of local schools, according to S&P.
"Reflecting the nature of employment opportunities available to residents locally and throughout the Austin MSA, median household effective buying income is, in our view, a very strong 161% of the national level," noted analyst Omar Tabani. "Market value, a wealth indicator, is also strong at $84,204 per capita."
To accommodate future enrollment growth, the district owns eight sites that will eventually contain new elementary, middle, and high school campuses. The district is issuing the series 2014A-2014C bonds, with the remainder of its $22.8 million bond authorization to be issued sometime in 2014 for capital needs for the next two to three years.
After a 1.8% contraction in fiscal 2011 due to the national economic downturn, the property tax base has experienced healthy growth, Tabani said. Taxable assessed value has increased by 13% since fiscal 2011 to $14.8 billion in fiscal 2014.
"Fiscal 2014, in particular, has experienced a healthy increase due to a resurgence in new home construction with taxable AV increasing by 6.6% compared with previous-year AV," Tabani said.
"In our opinion, finances are very strong," Tabani said.
