DALLAS — The drought that has pervaded the Texas municipal bond market over the last few months will continue this week, with tax-exempt issuance on the calendar limited to fewer than a dozen deals worth a total of less than $150 million.
According to the Texas Municipal Advisory Council, bond issuance for July is currently slated at $336.2 million, with $78.84 million of competitive deals on the calendar so far for the month, and $257.4 million of negotiated offerings currently scheduled.
Traders say they expect to see the Texas market’s drought give way to a torrent of deals in coming weeks.
“There is going to be a lot more volume coming up,” said Virgil Wiesner, a senior vice president at Estrada Hinojosa & Co. “The school districts will hear in the next few weeks from the Texas Education Agency about debt service assistance for the year, and they have to sell their issues quickly now so that they can meet the state’s deadline to set their property tax rates.”
Most Texas school districts end their fiscal year on Aug. 31, and they must set their tax rates before approving budgets for the next fiscal year.
In addition to bond authorizations worth a total of about $5 billion approved May 13, Texas school districts will hear from the TEA by Aug. 1 about debt service assistance provided by the state via the Instructional Facilities Allotment. However, in order to take advantage this year of both the new money authorizations and debt service assistance – as well as meeting the state’s deadline for setting property tax rates – school districts will have to sell their debt in time to meet the deadline.
“I predict you’ll see a lot of issuance between July 15 and Aug. 18,” said Wiesner.
There are 171 school districts with IFA applications under review by the Texas Education Agency. Debt service awards are made according to a district’s need, with some of the state’s poorest districts receiving as much as 90% of their debt service costs from the state.
In addition, the TEA has set a July 15 deadline for a separate program, the New Instructional Facilities Allotment, which offers districts $250 per pupil for campus start-ups, which could provide additional debt service assistance to districts.
Wiesner said that Texas paper continues to fare well in the market, adding that an approximately $90 million offering of general obligation bonds and certificates of obligation by the city of Richardson, Tex., was well received by the marketplace Thursday.
“Now, the question is whether the appetite for Texas paper will continue this strongly,” Wiesner said, adding that if there is a glut of Texas debt in the marketplace, it might get “cheaper and cheaper – but it would still probably get done.”
Steve Young, a managing director at SAMCO Capital Markets, said that while he believes “at the right price, there’s appetite for everything,” the market has stabilized somewhat after several weeks of volatility.
“We are seeing some of the spreads tighten on the Texas market,” he said. “We saw some different financings in the market this week have a decent bump of two to three basis points.”
School Districts Coming Slowly, but Surely
SAMCO is the lead manager for a $6 million offering of public property finance contractual obligations by the Laredo Independent School District, which is scheduled to price Wednesday. Wells Fargo Brokerage Services is the co-manager for the deal, while Escamilla & Poneck serves as the district’s bond counsel.
Winstead, Sechrest & Minick is the underwriters’ counsel for the transaction.
The issue, which will be insured by XL Capital Assurance, will finance equipment purchases for the district, including vehicles, band and orchestra instruments, and computers.
“The deal is not eligible for funding through the Texas Permanent School Fund because it is an equipment purchase,” said Young. “It doesn’t fit the criteria for the PSF guarantee.”
Don Gonzales, a managing director and shareholder at Estrada, Hinojosa, said that the district could take an approximately $57 million general obligation bond deal to market in August.
“Assuming that funding through the IFA is available, the district could go to market with about $57 million of general obligation debt,” he said.
The largest deal of the week, an approximately $50 million offering of general obligation debt by the Irving Independent School District, would provide $10 million of new money funding for projects, as well as about $40 million to refund portions of the Dallas-area district’s outstanding Series 2002 general obligation bonds.
First Southwest Co., Banc of America Securities, Morgan Keegan & Co., and Southwest Securities are the underwriters for the deal, and RBC Capital Markets serves as the district’s financial adviser. Vinson & Elkins is the district’s bond counsel, and McCall, Parkhurst & Horton will serve as underwriters’ counsel for the transaction.
Also on track for the week is an offering of $25 million of general obligation bonds by the Jacksboro Independent School District in east Texas. Southwest Securities is the district’s financial adviser, and McCall, Parkhurst & Horton serves as its bond counsel. First Southwest is the lead manager for the deal, with RBC Capital Markets and Edward Jones serving as co-managers. Fulbright & Jaworski is the underwriter’s counsel for the PSF-backed transaction.
The Perrin Whitt School Consolidated Independent School District is scheduled to go to market Thursday with an offering of $3.2 million of general obligation bonds. RBC Capital Markets is the sole underwriter for the deal, while Southwest Securities serves as the district’s financial adviser. McCall, Parkhurst & Horton is the district’s bond counsel. The district, which has not publicly issued debt since 1992, is located near Wichita Falls in north Texas.
The New Braunfels Independent School District near San Antonio will take $25 million of new money GOs to market on Thursday. SAMCO is the financial adviser to the district, and Fulbright & Jaworski serves as its bond counsel. A syndicate comprised of First Southwest, Southwest Securities, RBC Capital Markets, and Wells Fargo will underwrite the deal. McCall, Parkhurst & Horton is the underwriters’ counsel for the deal.
City Lights
The city of Magnolia, located about 40 miles northwest of Houston, will sell today $1.5 million of certificates of obligation.
Coastal Securities is the underwriter for the deal, and First Southwest Co. serves as the city’s financial adviser. Vinson & Elkins LLP is the city’s bond counsel.
Radian Asset Assurance Inc will insure the debt.
Officials plan to use proceeds from the issue for renovations to City Hall.
City manager Roger Carlisle said that construction on the building in 1999 was performed so shoddily that the city had to all but tear it out and start over from scratch. In fact, in 2003, the city abandoned the building after a leaking roof spurred concerns of possible mold infestation. Since then, the city has stripped the structure down to its steel work and gone “back to square one” to rebuild the facility, according to Carlisle.
Also going to market today is the south Texas border town of San Benito, which will sell $4 million of combination tax and limited pledge revenue certificates of obligation in a deal underwritten by First Southwest. Estrada Hinojosa is the financial adviser for the district, and Montalvo & Ramirez serves as its bond counsel. Fulbright & Jaworski is the underwriters’ counsel for the deal.
Not-So-Old College Tries, County Fairs
The Victoria County Junior College District will bring an offering of $14.5 million of revenue bonds to market this week. RBC Capital Markets is the lead manager for the deal, with First Southwest serving as co-manager. Southwest Securities is the financial adviser for the district, while McCall, Parkhurst & Horton serves as its bond counsel.
Also today, Bastrop County will issue $9.5 million of combination tax and revenue certificates of obligation in a competitive sale that will be offered via the i-Deal’s Parity electronic bidding platform.
Public Financial Management is the financial adviser to the county and Bickerstaff, Heath, Pollan & Caroom, L.L.P. serves as its bond counsel.
Proceeds from the issue are slated to finance technology upgrades, road improvements, expansion of the county jail, construction of a new courthouse annex, the building of a county emergency medial services facility, and other projects.
On Wednesday, the Northeast Travis County Utility District will go to market with the competitive sale of $4.5 million of unlimited tax bonds. The debt will also be offered via i-Deal’s Parity platform.
Southwest Securities is the financial adviser to the district and Freeman & Corbett serves as its bond counsel.
