Extremely Limited Supply This Week In Texas

DALLAS — There’s just a handful of issues set to price this week in Texas as a number of school districts postpone sales while they await reinstitution of the state’s triple-A rated school bond guarantee program. Still, one growing suburban school district plans to bring bonds to market this week following an upgrade of its underlying credit.

The Frisco Independent School District will offer $84.9 million of unlimited tax school building bonds and $13.7 million of unlimited tax refunding bonds Tuesday through a negotiated sale led by Morgan Keegan & Co. The rest of the underwriting syndicate includes Estrada Hinojosa & Co., First Southwest Co., and RBC Capital Markets.

Fitch Ratings raised the district’s credit to A-plus from A, citing “a trend of improved financial performance and recently completed major transportation corridors that provide expanded access to the larger Dallas-Fort Worth metro area and nearby city of Plano’s employment base.”

Moody’s Investors Service assigned its Aa3 rating to the Frisco ISD sale and affirmed the rating on the district’s $1.1 billion of outstanding debt. Standard & Poor’s rates the district AA-minus.

Richard Wilkinson, assistant superintendent for facilities and finance, said the bonds will be insured.

“While the upgrade from Fitch certainly helps, we’re pursuing insurance to make sure we get the lowest rate possible,” he said.

Wilkinson added that the district simply can’t wait to issue the bonds, as enrollment growth necessitates the need for new facilities and improvement to existing buildings.

Texas schools looking to issue bonds now have to consider private bond insurance because guarantees from the Permanent School Fund have been shelved by the Texas Education Agency until September at the earliest due to the declining value of investments and assets owned by the fund.

One financial adviser said he has had to indefinitely postpone two sales from school districts and delay two others because of the state’s decision to suspend the PSF bond guarantee program.

“Hopefully we’ll have a good summer in the stock market, the fund will see its holdings improve, and some capacity will open,” he said. “The TEA does expect capacity to open after some school debt gets retired in August. But until then, every day is a new day and we’re in wait-and-see mode with some deals.”

He also said Assured Guaranty Corp. has become a kind of insurer of last resort and is now wrapping numerous Texas school bond deals. Unlike many of its competitors, Assured Guaranty is still rated triple A by Fitch and Standard & Poor’s. It is rated Aa2 by Moody’s Investors Service.

Assured Guaranty’s February new-issue volume rose 56% from a year earlier, as the insurer wrapped 149 deals worth about $3 billion for a 13.3% share of the domestic public finance market, according to the company. The company saw a 134% increase in volume in January on top of 137% gain in December.

John Trahan, managing director of Assured Guaranty’s public finance group, said the company has “always been interested in insuring Texas school debt, but it’s been difficult to be as competitive as the PSF.”

The PSF program costs Texas schools about $2,300 per debt issuance, whereas private bond insurance can cost several times that amount.

“We’ve definitely seen an increase in Texas schools seeking to insure their bonds with us since the TEA’s decision,” Trahan said. “We absolutely expect this to continue and will be trying to qualify as much of the bonds as we can and be as economically attractive to them as possible.”

Voters in the district, which is about 20 miles north of downtown Dallas, overwhelmingly approved a $798 million bond package in May 2006, which is the third-largest ever passed by a Lone Star State school system and the biggest ever by a suburban district.

The district’s building schedule calls for 19 new campuses, including 10 elementary schools, six middle schools, and three high schools, to accommodate a student population that is expected to triple in the next decade to close to 60,000.

Officials anticipate another 3,500 children enrolling in each of the next two school years, pushing the student population to roughly 38,000. A decade ago, the district served about 3,750 students. This year’s enrollment is nearly 30,795 in the district’s 38 schools.

Southwest Securities Inc. is the district’s financial adviser and McCall, Parkhurst & Horton LLP serves as bond counsel.

Elsewhere, the city of Denton plans to issue about $7.7 million of general obligation refunding bonds this week through a negotiated sale led by Wachovia Bank.

In the competitive market this week, the Fort Bend County Municipal Utility District No. 50 will offer $16.3 million of unlimited tax bonds Tuesday.

Rathmann & Associates is the financial adviser to the district and Allen Boone Humphries Robinson LLP is bond counsel.

The bonds, which come to market unrated, are structured as serials maturing in 2011 through 2036.

Following the sale, the utility will have about $15.2 million of authorized but unissued debt and officials plan to offer another $6 million later this year.

Also Tuesday, the Montgomery County Utility District No. 2 plans to issue $4 million of waterworks and sewer system combination unlimited tax and revenue bonds. RBC is the adviser to the district.

The bonds come to market with an underlying rating of BBB-plus from Standard & Poor’s.

 

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