DALLAS — San Antonio yesterday priced nearly $156 million of tax-exempt refunding bonds as the city, Texas’ second largest, seeks to keep up with growth in a weakening economy.
With ratings of AAA from Standard & Poor’s, Aa1 from Moody’s Investors Service, and AA-plus from Fitch Ratings, 5% coupon general improvement bonds maturing in 2023 drew an initial yield of 3.32%, a spread of 18 basis points over the Municipal Market Data triple-A equivalent. The bonds are callable in 2020.
Siebert Brandford Shank & Co. was senior manager. Morgan Keegan & Co., Southwest Securities Inc., and Wells Fargo Securities were co-managers. Coastal Securities was financial adviser on the negotiated deal.
The issue included $146 million of general improvement refunding bonds and $8.9 million of Municipal Facilities Corp. lease revenue refunding bonds, which carried ratings one notch lower than the general improvement bonds.
Ben Gorzell, director of finance for the city, said the general improvement bonds produced net present-value savings of $7.8 million and was oversubscribed more than three times.
“We were very pleased with the outcome,” he said.
The general improvement refunding bonds are secured by an annual property-tax levy, limited to $2.50 per $100 taxable assessed valuation.
The facilities lease-revenue refunding bonds are secured by annually appropriated lease payments made by the city to the corporation.
After growing by a five-year annual average of over 7%, sales taxes declined by 4.7% in fiscal 2009 due to the economic slowdown. The city also saw revenue from its CPS power utility drop more than 10% due to falling natural gas prices.
“Management’s prompt mid-year budget adjustment enabled the city to close the resulting $49 million budget gap as reflected in its unaudited results, which actually show a modest surplus,” Fitch analysts said.
As a home to several large military bases, San Antonio is buffered from the worst impacts of the economic downturn, keeping the city’s unemployment rate well below state and national averages.
However, the city’s tourism business is vulnerable to consumer decisions to postpone vacations.
Residential building activity has also declined, though non-residential activity has remained stable due to numerous major projects in the military, health care, higher education, and professional business and services sectors.
The area’s housing market, which never participated in the housing bubble, remains relatively healthy as evidenced by only modest home price declines, according to Fitch.
In 2008, the city issued the second installment of a $550 million authorization approved by voters in May 2007, to cover the city’s backlog of capital needs. Officials proposed to seek voter authorization for similar-sized programs every five years.
All future debt will be sized to maintain the city’s current debt service tax rate assuming modest tax base growth, officials indicated.
“The impact of the proposed debt plans on the city’s direct debt profile should be manageable given its low current levels, rapid pay out rate, and expansive and growing tax base,” Fitch said.
“However, the city’s already high overall debt burden may become burdensome, even after adjusting for state support of local school district debt. The principal payout rate for property tax-backed debt is above average at almost 70% in 10 years, and debt-service payments represent an above-average 14% of combined general and debt service fund expenditures in fiscal 2008.”
San Antonio officials expect to issue about $135 million of general obligation bonds and certificates of obligation in early summer, with a $120 million airport deal to follow.