DALLAS — A single-family mortgage revenue bond issue by the Texas Department of Housing and Community Affairs leads this week’s calendar, which is otherwise pretty light.
In a negotiated deal led by Citigroup Global Markets Inc., the Department of Housing and Community Affairs plans to offer $280 million of single-family mortgage revenue bonds that are expected to result in $246 million in “lendable proceeds,” according to Eric Pike the department’s director of single-family finance production.
“We typically do one to three of these programs a year, and with the funds of the last program depleted, now is the right time,” Pike said. “It will also coincide with June, which is Homeownership Month.”
The department uses a network of lenders — such as Wells Fargo, JPMorgan Chase, and Countrywide Home Loans — to make mortgages available for income eligible, first-time home buyers throughout Texas. Funds from this bond issue will be made available May 26, Pike said.
“I would certainly suggest there is tremendous demand for homeownership in Texas, and there’s a steady demand for these funds,” he said.
Earlier this month, Standard & Poor’s upgraded its rating to AAA from A-plus on various series of the state agency’s single-family mortgage revenue bonds, as well as its underlying rating on the single-family mortgage revenue bond trust indenture due to “the increased percentage of extremely strong collateral in the form of Fannie Mae, Ginnie Mae, or Freddie Mac mortgage-backed securities, which currently represent 94% of the total mortgage collateral securing the indenture.”
The outlook is stable, according to Standard & Poor’s, which said the upgrade also reflects extremely strong coverage of potential losses and liquidity needs on the whole loans in the indenture, loss coverage and liquidity in the form of pool insurance and reserves, and the very strong financial strength of the bond indenture as evidenced by consolidated cash flows reflecting asset-to-liability parity of more than 106%.
PEARLAND ISSUING $10.2M
The Pearland Economic Development Corp. today will go to market with $10.2 million of sales tax revenue bonds. Proceeds are set to be used for the construction and improvement of new roads, specifically near the Pearland High School, and a rail overpass in the growing affluent suburb about 18 miles south of Houston.
The bonds are structured as serials with final maturity in 2030. Insurance for the bonds will be at the bidder’s option. RBC Capital Markets is the financial adviser and Andrews Kurth is the bond counsel.
Pearland City Councilman Richard Tetens said the city “just keeps expanding, and as long as the growth occurs the bond issues will continue.” Tetens, who’s lived in Pearland for 35 years, said the city may look to issue more bonds soon in order to update the infrastructure of some municipal buildings.
“We’re pretty crowded now,” he said. “Presently we’re leasing space for some of our offices, and I don’t think that’s a good thing. There are additions that are needed, and we’ll most likely use bonds to get them.”
Tetens estimates the city’s population is now “closer to 80,000” than the 37,640 reported by the 2000 Census.
Standard & Poor’s assigned its A rating with a stable outlook to the issue, citing the city’s accessibility to the Houston market, growing retail tax base, above-average wealth levels and sound financial operations.
Moody’s Investors Service assigned its A2 rating to the issue, citing the growth of the local economy, coupled with stable financial operations of the corporation, increases in pledged revenues and strong debt-service coverage. Moody’s also upgraded its rating on the Economic Development Corp.’s outstanding parity debt to A2 from A3.
ANOTHER MUD ISSUE
On Wednesday, the Harris County Municipal Utility District No. 276 will go to market with $3.1 million of unlimited-tax bonds, marking yet another bond issue by a Houston-area municipal utility district this month. Proceeds from the bonds, which are structured as serials with final maturity in 2027, will be used to upgrade water distribution, wastewater collection and storm drainage facilities in the district.
At least six Houston-area municipal utility districts have issued bonds so far this month, as the region tries to maintain utility services to keep pace with population growth in some of the state’s most rapidly developing areas.
In early May, Harris County Judge Robert Eckels told The Bond Buyer that “as housing development expands, you’re going to see these MUDs scramble to meet need by adding additional capacity and continuing to upgrade their systems for some time.”
Eckels added that Harris County is now more populous than 25 states.
First Southwest Co. is the financial adviser to the MUD, and Fullbright & Jaworski LLP is the bond counsel. The district is within the huge Cypress-Fairbanks Independent School District.
The bonds are expected to be qualified for insurance, according to First Southwest Senior Vice President Julie Peak.
Last week, Standard & Poor’s assigned its BBB-minus rating with a stable outlook to the deal. The agency said the rating reflects the district’s high overall net debt burden, high direct and total tax rates and its weak financial position. Standard & Poor’s said the district’s finances are improving.
The MUD has 550 completed and occupied single-family residential homes and almost 400 more lots available for construction. The service area also includes significant commercial and retail development, according to the ratings agency, and about 85% of available acreage contains utility infrastructure.
Also Wednesday, the Travis County Municipal Utility District No. 5 is coming to market with $2.23 million of unlimited tax bonds. Southwest Securities is the financial adviser to the district.
On Tuesday, the Brazoria Municipal Utility District No. 23 plans to competitively offer $4.53 million of unlimited-tax bonds. Rathman & Associates is the financial adviser to the MUD.
WATER BOARD SETS $13.4M DEAL
The Texas Water Development Board plans to issue $13.36 million of general obligation, water financial assistance refunding bonds in a negotiated deal tomorrow that’s garnered strong underlying ratings from all three ratings agencies due to the backing of the state.
This deal is the final stage of a refunding plan the state agency undertook in 1996 that has resulted in total savings of about $43 million, according to Nancy Banks Marstiller, the Development Fund Manager for the TWDB.
“We’ve been refunding debt in one program and moving it to another for eight years now, and these are the last two Series,” Banks Marstiller said. “With Aug. 1 the first call date for these series, it just made sense to take advantage of the savings available and go ahead and close out our Development Fund I, moving the debt into the newer Development Fund II.”
Banks Marstiller added that the expected present-value savings is “close to 5%,” which should result in savings of $1.5 million from refunding the Series 1996A and Series 1996B bonds.
Estrada Hinojosa is the lead manager for the issue that is set to price tomorrow morning. Senior co-mangers are Southwest Securities and Banc of America.
Standard & Poor’s assigned its AA rating with a stable outlook to the deal, due to the state’s backing. The agency said its rating reflects the board and state’s participation in a program that facilitates development of regional water and wastewater projects by having the state incur the cost of oversizing system components until demand materializes and the local participant begins making loan repayments.
While the Texas Legislature specifically appropriated funds to cover this “bridge” debt service during the 2003 legislative session, state support still includes the GO full faith and credit pledge, the agency said in a research note.
Fitch Ratings assigned its AA-plus rating and Moody’s assigned its Aa1 rating to the deal.
LAST WEEK’S PRICING
Recapping the largest deal of last week, Austin sold $150 million of electric utility system revenue refunding bonds. Lehman Brothers bought the deal and reoffered bonds to yield between 3.70% in 2008 and 4.64% in 2035. Bonds due between 2017 and 2035 are callable Nov. 15, 2016 at par.
The bonds, which were insured by Financial Security Assurance Inc., were rated A1 by Moody’s, A-plus by Standard & Poor’s, and AA by Fitch.
