DALLAS - With rates falling and volume rising, the cost of municipal bond issuance for Texas state issuers dropped to the lowest level on record in 2014, according to the Texas Bond Review Board.
The board's report for fiscal year 2014 shows the weighted average issuance cost for state agencies at $4.38 per $1,000, a reduction of $1.80, or 29%, from the $6.18 in fiscal year 2013.
Over the past five years, the issuance cost has fallen by more than half from the $8.94 reported in 2009. The peak over the past 10 years came in 2008, when issuance costs were $9.37, according to the BRB.
Falling interest rates compressed underwriters' spreads while highly rated credits have increased their volume, according to the BRB.
In fiscal 2014 the average issue size for Texas' state issuers increased to $303 million from $175.1 million in fiscal 2013, the report said. Excluding conduit and private placement issues, 76.2% of the 21 transactions completed in fiscal 2014 were $100 million or greater in size, compared to 33.3% of the 18 transactions completed in fiscal 2013, the report said.
The weighted average underwriting spread accounted for 73% of all issuance costs, according to the report. As a result of increased transaction sizes in fiscal 2014, the weighted average underwriting spread per issue declined to $3.21 from $4.23 in fiscal 2013 and fell below the prior low of $3.52 per $1,000 reached in fiscal 2008.
Statistics published by Thomson Financial Securities Data show that underwriting spreads nationally averaged $4.99 per $1,000 compared to Texas' average of $3.21 per $1,000.
Also as a result of the larger issuances during fiscal 2014, other issuance costs, including bond counsel, financial advisors, rating agencies, and printing, fell to an average of $1.17 per $1,000 compared to $1.95 in fiscal 2013.
A total of 62 issuances were completed in fiscal years 2007-2014 with an average par amount of $95.5 million, the report said. Of the 62 issuances, 35 were negotiated variable-rate issues, seven were competitive fixed-rate issues and none were competitive variable-rate issues.
Texas' average of $3.33 per $1,000 for negotiated sales and $1.78 per $1,000 for competitively bid sales were 35.1% and 58.5% below the national averages, respectively.
"As before, this difference is partially explained by the generally higher credit quality of Texas issues," the BRB report said.
Of the state's $44.33 billion in debt outstanding as of Aug. 30, $5.68 billion or 12.8% was state conduit and component debt, which includes $2.90 billion issued by Grand Parkway Transportation Corp.
The $5.68 billion of conduit and component debt outstanding represents an increase of $33.2 million or 0.6% from the $5.64 billion outstanding at the end of fiscal 2013, according to the report. As conduit debt, GPTC debt service is payable solely from payments received from transportation projects it finances.
About $15.1 billion, or 34%, of the state's total debt outstanding was backed by the state's general obligation pledge, a decrease of $261.0 million or 1.7% from the $15.35 billion backed by the GO pledge at the end of fiscal 2013. The decrease was the result of a $150 million cash defeasance in the Texas Transportation Commission's Mobility Fund and scheduled amortization of outstanding debt, according to the report.
Texas state agencies expect to issue approximately $7.87 billion in bonds, commercial paper and variable rate notes during fiscal year 2015, a projected increase of $494.2 million or 6.7%, over the amount projected for fiscal 2014.
