DALLAS — Seeking to take advantage of historically low interest rates on the long and short end of the market, Houston brought $371 million of refunding bonds to market Tuesday through a syndicate led by Jefferies & Co.
An issue of $269.7 million of Series A tax-exempt general obligation bonds drew yields of 4.036% on 4% coupons maturing in 2042, while $101.7 million of taxable Series B bonds maturing in 2018 with coupons of 1.5% yielded 45 basis points over Treasuries.
Both series carried ratings of AA from Standard & Poor’s and Fitch Ratings with stable outlooks. Moody’s Investors Service did not rate the issue.
“Partially constraining the rating are the self-imposed revenue-raising restrictions and a large capital program that will likely keep debt ratios elevated,” said Standard & Poor’s credit analyst Russell Bryce. “However, the stable outlook reflects our expectation that officials will continue to take steps necessary to manage Houston’s financial position to comply with the city’s formal reserve policy.”
First Southwest Co. is the city’s financial advisor. Fulbright & Jaworski and Baker Williams Matthiesen are bond counsel.
Because of its status as a world energy hub and an increasingly diversified economy, Houston has weathered the recession better than most cities with far fewer problems in the housing market.
Nonetheless, taxable assessed value in the city of 2 million people fell 4.9% for fiscal 2011, the first decrease since fiscal 1993.
Officials projected another decline of about 0.1% for fiscal 2012.
However, the city now reports that valuations increased about 1.9% to an estimated $145.7 billion for fiscal 2012.
They expect valuations to grow by at least 3.8% for fiscal 2013, based partly on improved sales of large commercial properties.
“In our opinion, Houston’s financial position remains good, despite difficulties associated with a decline in taxable [assessed valuation] for fiscal 2011 and recent pressure on sales tax collections that appear to be alleviating,” Bryce wrote.
“At the end of fiscal 2010, the audited unreserved general fund balance stood at $201 million, or 11.5% of operating expenditures, after a $79.9 million decline in fund balance.”
Bryce considers the city’s debt burden “moderately high” at 7% of market value and “moderate” at about $4,419 per capita.
“For fiscal 2011, total governmental debt service of $354 million equated to about 14.7% of total governmental fund expenditures, which we consider moderate,” Bryce wrote. “Harris County, Houston Independent School District and the Port of Houston each have sizable debt-financed capital improvement programs, causing the overlapping debt burden to continue.”