DALLAS - Top-rated San Antonio plans to close out July with a $450 million general obligation deal, bringing the Alamo City's new money and refunding issuance for the month to nearly $1 billion.
The GO bonds and certificates of obligation are expected to price July 28 through negotiation with book runner Citi, said San Antonio chief financial officer Ben Gorzell.
Mario Carrasco, director at Citi, is lead banker on the deal, with Jorge Rodriguez, head of public finance at Coastal Securities, as financial advisor.
The deal follows pricing last week of $165 million of taxable and tax-exempt debt for a combined rental car and parking facility at San Antonio International Airport and $320.5 million for the city owned utility CPS Energy.
CPS chief financial officer Paula Gold-Williams oversaw the utility bond deal, and Gorzell supervised the airport bond pricing on the same day. While the airport bonds were new money for a project expected to be completed in 2017, the CPS bonds were all refunding.
"It's a very different type of debt," Gorzell said of the airport and utility bonds. "We were able to be in the market on the same day, and it didn't really cause a problem."
CPS achieved net present value savings of $36.9 million in its refunding of 2007 bonds, Gold-Williams said.
"Our tax-exempt bonds were very well received in the market, with the demand for the bonds coming in more than double our supply," she said. "These savings will factor in to our long-term financing plan, benefiting our customers over the life of the bonds."
Jill Toporek, head of Goldman Sachs' energy group, led the banking team on the CPS deal, with three financial advisors: First Southwest Co., Public Financial Management Inc. and Estrada Hinojosa & Co.
Coastal's Rodriguez, who was also financial advisor on the airport bonds, expects the $450 million GO bond deal to be one of the largest in the last week of July. For the month, issuance is coming fairly heavy from Texas in large part because local governments need to set their tax rates for the coming fiscal year and must know interest rates on their debt, he said.
The airport issue was designed to attract crossover buyers from the corporate side of the market looking for higher yield from taxable bonds.
The first $39.3 million tranche of the airport bonds was tax-exempt bonds backed by the airport's passenger facility charges and subject to the alternative minimum tax. The second $124.2 million tranche, backed by customer facility charges for rental car customers, was taxable.
Combined, the true interest cost for the two airport tranches came to 5.36%, Gorzell said.
The deal, led by Wells Fargo Securities director Kevin Carney, was heavily oversubscribed, with $490 million in orders, Gorzell said.
"I think the design of the transaction may have been appealing to investors," Gorzell said. "We were pleased with the overall outcome."
The airport bond tranches carried separate ratings based on their revenue streams.
The tax-exempt bonds were rated A1 by Moody's, and A-plus by Standard & Poor's and Fitch Ratings.
The taxable bonds were rated A3 by Moody's, A-minus by Standard & Poor's and BBB-plus by Fitch Ratings.
"The stable outlook reflects Standard & Poor's expectation that steady enplanement growth will occur as management has projected during the forecast period," analyst Anita Pancholy wrote. "Standard & Poor's also expects that debt service coverage per our calculations will remain in line with current levels."
Construction of the combined parking garage and car rental facility is beginning this month, with completion expected in 2017, according to San Antonio Aviation Director Frank Miller.
"The issue that we've had here is the difficulty of the passengers getting to and from where they pick up the cars," Miller said. "We'll be eliminating the shuttle buses, and the new facility will greatly improve the customer experience."
The airport will sign rental car and concession agreements with eight companies before it delivers the bonds. Each operator is responsible for ground rent, which is considered as general revenues of the airport system.
While the airport bonds attracted investors looking for higher yield, the general obligation bonds coming at the end of the month should appeal to institutional investors who need top-rated securities, Rodriguez said.
"San Antonio usually gets a very strong response to its issues because of its triple-A rating," Rodriguez said.
The GO deal will include $250 million of new money and $200 million or more in refunding, Gorzell said. The new money will include $85 million of certificates of obligation and about $45 million for upgrades to the Alamodome stadium, he said.
The new money will be the fourth issue from a 2012 authorization of $596 million.
The city will have capacity for one more issue from the 2012 election and is likely to ask voters to approve another proposal in 2017, Gorzell said.
Additions to the 21-year-old Alamodome include two LED video boards, wider concourses on the stadium's east and west sides, an outdoor plaza, and new terrace club. Construction is expected to begin in November.
To accommodate the NCAA's Final Four tournament in 2018, designers are enlarging the locker rooms and a media room. The city is also in the bidding for the NCAA's college football playoffs, with an announcement of the winner expected in December.
Built in hopes of attracting a National Football League team, the Alamodome played host to the New Orleans Saints after Hurricane Katrina in 2005 and was scouted as a new home for the Oakland Raiders, whose owner has decided to keep the team in Oakland for the time being while pursuing a stadium deal in Los Angeles.
As the second-largest city in Texas, San Antonio enjoys stability from its large military presence and volatility from its location just north of the Eagle Ford Shale, one of the most productive shale oil and gas producing regions in the nation. With oil prices hovering around half of their 2014 peak, activity in the Eagle Ford has declined.
The Alamo City dodged a bullet earlier this month when the U.S. Army announced minor cutbacks of 329 soldiers at Joint Base San Antonio, the city's largest employer. The government sector employs 17.8% of the city's workforce, with the military accounting for more than 92,000 jobs.
San Antonio benefited from the Base Realignment and Closure (BRAC) in 2005. The BRAC initiative awarded the joint base $3.4 billion in construction, which accounted for an estimated $8.3 billion in economic impact for the city. The BRAC also resulted in the consolidation of five military education training programs from across the country at the joint base and the creation of the military's largest inpatient health care facility.
In a special report after the Army's July 9 announcement that it was cutting 40,000 troops over the next three years, Moody's said that San Antonio's credit should not be affected.
