DALLAS - After three months of delay caused by litigation, the Houston Independent School District is postponing its $400 million general obligation bond sale due to market conditions.
The district just last week won the state attorney general's approval to sell the bonds, with a certification indicating that there was no pending litigation. The approval came after attorney Ty Clevenger dropped out of a federal lawsuit against the district. Clevenger had previously challenged HISD's approval process for the bond sale and claimed racial bias in the planned use of the proceeds.
Now, market turmoil has closed the window.
Chief financial officer Melinda Garrett said it may be days or weeks before conditions improve sufficiently to market the bonds. The rate for bonds like those of Houston would be offering jumped to 5.4% this week, she said. That would add about $2 million per year to the debt service, officials estimated.
Last week, the neighboring Spring BranchIndependent School District sold $194 million of GOs with a top yield of 5.27% in 2038, which was better than district officials expected. Meantime, another nearby district, the Cypress-Fairbanks Independent School District said it does not have any immediate plans to sell bonds approved last November. Cy-Fair last sold bonds in June 2007, with a top yield of 5.21% in 2030..
Another large Texas issuer, the North Texas Tollway Authority,said yesterday that it plans to go forward with tomorrow's $2.3 billion revenue bond sale despite the market volatility. But the NTTA board called a special meeting for today to talk about how the volatility might affect financing plans.
Munis appeared to have experienced somewhat of a comeback yesterday, as yields fell amid a crowd of buyers taking advantage of relatively cheap tax-exempts. Bond insurance rating actions and the collapse of the auction-rate market has added uncertainty that sent spreads against Treasuries to unprecedented levels. Yesterday, tax-exempts firmed by seven to 14 basis points, market participants said.
As it sought to resolve the litigation holding up its bond sale, HISD had received a one-notch upgrade to AA-plus from AA from Standard & Poor's last month. The upgrade made Houston one of only two Texas school districts with that rating, the other beingthe Plano Independent School District . There are no triple-A rated school districts in Texas, but most carry the backing of the state's Permanent School Fund for guaranteed triple-A ratings.
In seeking to have the Texas Supreme Court toss out Clevenger's legal challenges to the bond sale last month, attorneys for the Houston ISD pointed out the high cost of delay amid rising construction costs.
"Delays are costing the taxpayers hundreds of thousands of dollars in increased construction costs," the district's brief to the Supreme Court stated.