DALLAS — Texas issuers will start slowly in the first full week of the new year, still saddled with baggage from one of the worst years in muni market history.

First Southwest Co., the state’s top financial adviser and a leading broker-dealer, starts 2009 under new ownership after its acquisition by PlainsCapital Corp. was completed last week. Working under Texas’ second-largest privately held commercial bank allows First Southwest access to federal funds designed to improve liquidity to the banking system.

Meanwhile, three school districts will tap the dwindling capacity of the Texas Permanent School Fund, which was sidelined last month by falling investment value and rising demand for the fund’s triple-A backing of public school bonds.

With insurance costly due to the loss of major bond insurers, some school districts are planning to issue on their own credit ratings or postpone pending issues.

Spring Independent School District will carry PSF backing in its scheduled sale of $94.1 million this week in a negotiated deal led by Morgan Keegan & Co. First Southwest Co., Loop Capital Markets, Merrill Lynch & Co., Morgan Stanley, Siebert Brandford Shank & Co., and Southwest Securities Inc. are co-managers.

RBC Capital Markets works as financial adviser for Spring ISD, with the law firm of Vinson & Elkins as bond counsel.

The district will issue premium capital appreciation bonds as well as current interest bonds in amounts to be determined.

The bonds will carry triple-A ratings from Standard & Poor’s and Moody’s Investors Service due to their backing from the PSF, a fund made up of revenues from state lands and other investments. The bonds will carry maturities from 2011 to 2034.

Proceeds of the bond sale will be used for construction and renovation of new schools in the Harris County district 20 miles north of downtown Houston.

With nearly $621 million of outstanding bonds, the new issue will raise the district’s indebtedness to $715 million for an 8.53% debt-to-assets ratio. Annual debt service is expected to average $46.4 million through 2034.

Also pricing bonds with PSF backing is the Bishop Consolidated Independent School District, which is selling $14.2 million through negotiation with RBC. The district south of Corpus Christi won voter approval of $24 million of bonds in November to build a new high school, add security systems to all schools and make improvements to the district stadium. The first tranche of $10 million was sold in 2008.

Bishop CISD won an upgrade of its underlying credit last month from Standard & Poor’s. The rating moved three notches from BBB to A.

“The upgrade is due to continued tax-base growth and maintenance of a strong financial position,” said Standard & Poor’s credit analyst Kate Choban.

The Brownsville Independent School District, which has been in the day-to-day mode, could come to market with $7.3 million of PSF-backed bonds in a deal managed by Morgan Keegan, with Estrada Hinojosa & Co. as financial adviser. The southernmost district in Texas won voter approval of $135 million of bonds in 2006. Among the projects still under construction are Veterans Memorial High School and Edward Manzano Jr. Middle School, both expected to open in 2010.

The PSF announced in December it would not back any new bond issues for the time being other than those already approved, such as this week’s deals.

Beyond the school campuses, the city of Corpus Christi is expected to price $12 million of general obligation certificates of obligation with Morgan Keegan as senior manager. The certificates are rated AA-minus by Standard & Poor’s and Fitch Ratings.

Rounding out the calendar are several municipal utility district sales.

The Harris-Fort Bend County Municipal Utility District 3 will sell $7 million competitively on Tuesday with First Southwest as financial adviser. Brazoria County Municipal Utility District 17 will sell $3.5 million competitively the same day with Rathmann & Associates as financial adviser. The MUD has a BBB-minus rating from Standard & Poor’s, its only rating. Both deals are bank qualified.

Harris County Municipal Utility District 49 will sell $5 million of water and sewer tax and revenue bonds competitively on Wednesday with First Southwest as financial adviser.

On Thursday, the Denton County Freshwater District is selling $6.8 million of bond anticipation notes with First Southwest as financial adviser. The same day, Galveston County Municipal Utility District 39 will sell two series of tax-backed bonds totaling $3.6 million competitively. The bonds, rated BBB-minus by Standard & Poor’s, are bank qualified.

 

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