Orders plentiful for $8 billion Texas note sale

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With investors seeking a safe place to park their money in a volatile market, Texas saw strong demand for $8 billion of tax and revenue anticipation notes with interest rates 36 basis points below one-year Treasuries, according to state Comptroller Glenn Hegar.

The notes maturing in a year received a net interest rate of 1.34% and were nearly three times oversubscribed.


The rate fell 50 basis points below that of the Texas 2018 TRANs but 38 basis points above the 2017 deal's 0.96% rate.

The Comptroller's office received 67 bids worth $22.77 billion, 2.85 times the amount offered for sale, Hegar reported.

"Texas remains a very solid investment, and we are pleased with the market's reaction to this sale," Hegar said. "A net interest rate of 1.34% on what is essentially a one-year note, while one-year Treasury notes are yielding about 1.7% is indicative of Texas' strong credit and track record of responsible fiscal management. That's clearly very appealing to market participants in the current interest-rate environment."

Unlike Treasurys, the Texas notes are exempt from federal income tax.

Fifteen groups took a piece of the TRANs sale: Bank of America Securities, Barclays Capital, Citigroup, FTN Financial Capital Markets, Goldman Sachs, Hutchinson Shockey, Janney, Loop Capital Markets, Morgan Stanley, RBC Capital Markets, Stephens, SWBC Investment Services, TD Securities, UBS Financial Services and Wells Fargo Securities.

George K. Baum was the financial advisor; Orrick Herrington was the note counsel.

The notes, dated Sept. 4, will be repaid on Aug. 27, 2020.

In keeping with Texas’ triple-A rating from four agencies, the notes carried the highest short-term ratings. Texas carries a higher credit rating from S&P Global Ratings than the United States, which is rated AA-plus.

"The rating reflects our opinion of the state's very strong long-term creditworthiness, historically conservative cash-flow projections, and early set-aside of TRAN repayments," said S&P analyst Oscar Padilla. Other factors include Texas' coverage of approximately 2.9x, which includes additional liquidity provided by other borrowable internal resources.

The sale Wednesday was the largest TRAN issue for the state since 2011 when it issued $9.8 billion.

Money from the sale of the TRAN is used to help fund expenditures such as public-school payments made early in the fiscal year, before the arrival of tax revenues later in the year.

Texas begins its fiscal year Sept. 1 under a $250.7 billion budget that Hegar certified in June. The budget was passed by the 86thLegislature and signed into law by Gov. Greg Abbott as House Bill 1.

Hegar’s most recent total revenue projection released in May included an upward revision of $518 million and accounted for the passage of online marketplace legislation, which added about $550 million in additional sales tax revenue.

The upcoming budget grew 4.9% or $11.86 billion greater than the preceding biennium, with public education funding growing 20% or $12.18 billion. The general revenue funded portion, representing nearly $119 billion of the total, is $10.3 billion or 9.5% higher than the current biennium.

“We’ve seen tremendous growth in Texas over the last year and a half, which allowed lawmakers to make historic investments in education and provide much-needed property tax relief,” Hegar said. “Uncertainty in the global economy, however, as well as increasing unpredictability surrounding international trade policy at the federal level, may have dampening effects on the Texas economy in the coming years.”

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TRANs Primary bond market State budgets Glenn Hegar State of Texas Texas
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