DALLAS - The Texas Water Development Board will drain its remaining debt authorization under the current budget with $162 million of general obligation bonds next month.

The board is planning to take retail orders May 4 with institutional to follow. The upcoming issue is the second half of a $153 million deal that priced in February, drawing a strong response.

"That sale was a very good sale," said Nancy Banks-Marstiller, development fund manager for the TWDB. "We had lots of retail interest the first day and we accelerated the institutional order to the first day instead of waiting for a second day. So, we're hoping for similar results this time."

Morgan Stanley is the senior manager on the deal with a syndicate of eight other underwriters. First Southwest Co. serves as financial manager, with McCall Parkhurst & Horton as bond counsel.

The ratings agencies have affirmed their previous ratings of AA from Standard & Poor's, Aa1 from Moody's Investors Service and AA-plus from Fitch Ratings.

Because of the strong backing of the bonds by the state and the strength of local water utilities that borrow from the pooled debt fund, investment experts expect the bonds to be lapped up quickly. The TWDB is a large issuer of debt that sticks to a fairly routine schedule of issuance.

The issue comes as the Texas Legislature is preparing to boost outlays for water projects under a $178 billion House budget that is awaiting resolution with the $180 billion Senate version. In addition to the state funding, the TWDB will apportion federal stimulus funds to local water utilities.

The state's GO bonds are guaranteed the first money coming into the Texas treasury not otherwise appropriated. That was $36.9 billion at fiscal year-end 2008. A 1997 constitutional amendment consolidated various bond authorizations of the water development board, and all bonds issued prior to 1997 have been defeased.

The new bonds are for conservation projects under the water infrastructure fund supported by state funds. However, repayment of loans to local subdivisions also covers the debt service.

In Fitch's view, the downside risks include strong demand for water loans from local issuers due to the state's continued growth and the general effects of the continuing recession. So far, Texas has been spared much of the damage seen in other states, but unemployment is rising as home sales continue to fall.

"In particular, the general revenue fund remains sensitive to longer-term funding shortfalls of property tax relief in the form of increased state funding for school finance," analysts noted. "After remaining resilient to the national economic downturn during 2008, the state's economic performance is slipping rapidly, with revenue performance following suit."

Fitch considers Texas' net tax-supported debt burden low at about $11 billion, which comes to $450 per capita and 1.2% of 2008 personal income. Of the $10.9 billion in GO bonds outstanding, $8.4 billion are self-supporting.

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