DALLAS — With a year of historical disruptions behind it and tough sledding likely in the new year, the Texas bond industry will take a break for the holidays.
Only a few small deals appear on the calendar, with none approaching even $10 million.
In addition to the loss of major investment banks, the virtual disappearance of bond insurance, the crashing equities market, plummeting oil prices, and general economic despair, Texas schools are also facing the loss of backing from the Permanent School Fund, which was suspended this month after reaching its capacity limit.
Among the last to issue debt with PSF backing was San Antonio’s Northside Independent School District, which priced $80 million of general obligation bonds Dec. 1 through negotiation with RBC Capital Markets as lead manager. The bonds, with a double-A underlying rating, drew yields of 2.91% in 2012 to 5.68% in 2028.
Dallas Independent School District managed to get its troubled bond sale to market on Dec. 3 before the PSF freeze, issuing $393 million through RBC, drawing yields of 2.91% on 2012 maturities to 5.68% in 2038. DISD’s underlying ratings were AA-minus from Standard & Poor’s and Fitch Ratings and Aa3 from Moody’s Investors Service.
For issuers with ratings lower than double-A, issuing debt on their own credit could prove excessively costly, experts say.
“The lower the credit rating, the more analysis ought to go into issuing the debt to meet near-term needs or waiting until the economy improves and PSF support is available,” said David Tiffin, a vice president at RBC. “We’ve got a BBB-minus that we’re not even thinking of bringing to market.”
Officials who administer the PSF say they may be able to lift the freeze on PSF backing in January if investment results improve or the Internal Revenue Service agrees to increase the fund’s leverage from the current 2.5 times ratio to 5, as approved by the 2007 Texas Legislature.
Meanwhile, trading desks will be staffed for the few deals that might go to market.
Fort Bend County Municipal Utility District will price $4 million on Monday in a competitive deal. The bonds are rated BBB-minus by Standard & Poor’s. First Southwest Co. is the MUD’s financial adviser.
Deals remaining on the day-to-day calendar include the city of Irving’s $125 million of convention center hotel occupancy tax revenue bonds through JPMorgan, Cinco Municipal Utility District No. 1’s Financial Security Assured-insured $3.7 million of contract revenue refunding bonds through negotiation with First Southwest, $12 million of Corpus Christi combination tax and solid waste revenue certificates of obligation through Morgan Keegan, and Daingerfield-Lone Star Independent School District’s general obligation bonds through First Southwest.