DALLAS - San Antonio hopes to cash in on a flight to quality this week with $179 million of notes and bonds representing the city's last deal of the year.
The $16 million of tax notes will sell separately from the combined $77 million of general obligation bonds and $86 million of certificates of obligation. This issue is the second from a record $550 million bond proposal approved by voters in 2007.
With a new triple-A rating from Standard & Poor's, the Alamo City will be able to issue the debt without needing insurance. Fitch Ratings rates the bonds AA-plus, while Moody's Investors Service rates them Aa1.
City finance director Ben Gorzell is optimistic the market will prove receptive as investors return from the Thanksgiving holiday. San Antonio's is one of several large issues coming from Texas issuers this week, including $400 million from the Dallas Independent School District and $300 million from the Lower Colorado River Authority.
"It's a deal we would like to get done this year, but it is not one we have to get done," Gorzell said. "I think we've got a good chance, though the market is still difficult."
Siebert Brandford Shank & Co. will serve as senior manager on the $163 million of bonds and certificates with Citi, JPMorgan, SAMCO Capital Markets, and Southwestern Capital Markets Inc. as co-managers.
Southwest Securities is lead manager on the $16 million of tax notes.
Coastal Securities and Estrada Hinojosa & Co. are financial advisers on both issues.
Winstead PC and West & Associates serve as bond counsel.
Gorzell said the triple-A rating will be especially helpful given the market volatility.
"When buyers are looking for higher quality paper, it's an added bonus for us going into this difficult market," he said.
Standard & Poor's conferred its top rating on the city on Oct. 14, citing San Antonio's increasingly strong financial position, including an unreserved general fund balance of nearly $155 million, an undesignated general fund balance of $86.3 million, and emergency budget financial reserves of $68.2 million for fiscal 2008, which ended Sept. 30.
In the current 2009 fiscal year, sales and property tax revenues are coming in close to the projected levels, despite the recessionary economy throughout most of the country, according to Gorzell.
"So far, we're pretty close to plan," he said.
With an estimated population of 1.3 million, San Antonio ranks as the nation's seventh-largest city in the United States and the second largest in Texas after Houston.
Analysts note that the city continues to experience sustained growth in the manufacturing, tourism, and services sectors. Anchored by military bases such as Fort Sam Houston, Randolph and Lackland Air Force bases, the city is diversifying its economy with the recent opening of a Toyota truck manufacturing plant and several facilities in the information technology and health care sectors.
The city is home to five Fortune 500 companies, but a sixth, AT&T, was lost to Dallas in June. The telecom giant will keep 5,000 employees at the San Antonio operations center.
In the current fiscal year, assessed property valuation grew by 10.4% over the previous year to nearly $73 billion, up roughly 57% over the past five years.
"Despite the collapse of the housing market in other parts of the country, San Antonio's residential and commercial construction activity remains positive, albeit at a slower pace," according to Standard & Poor's analyst Horacio Aldrete-Sanchez.
The city's more than $1 billion in outstanding debt includes $737 million of GO bonds, $294 million of certificates of obligation, and $18 million of tax notes.
With an eye toward whittling its list of deferred capital needs, the administration is proposing to seek voter authorization for similar-sized programs every five years.
"The impact of the proposed debt plans on the city's direct debt profile should be manageable given its low current levels, rapid payout rate, and expansive and growing tax base," according to Fitch analyst Jose Acosta. "However, the city's already high overall debt burden may become burdensome, even after adjusting for state support of local school district debt."
A Moody's analysis of the city's retiree health care provisions - or other post-employment benefits - shows a liability of about $352 million under the civilian plan and $325 million for police and fire.
"Moody's believes the city's OPEB liability is manageable and within city resources," analyst Kristin Button wrote. "For the city's pension schedules, the fire and police plan is funded at 88% and the city's TMRS plan is 74% funded; these funding levels appear to be consistent with other highly rated cities."
Proceeds from this week's bond sale will go toward streets, parks, and other civic improvements.
The certificates will be used in part for work on the San Antonio River, whose walkway is extending from downtown to the museum and parks to the north. The stretch of river walk is known as the Museum Reach, with funding coming from Bexar County bond issues, federal money, and private donations, as well as city bond money.
Another major project is the transformation of 311 acres in the heart of the city's north side into Voelcker Park. With proceeds from the 2007 bond vote, San Antonio bought the former dairy farm once operated by Max and Minnie Voelcker and held in trust after their deaths.